Overseas Union Enterprise

DMG & Partners Research on 22 Feb 2012

FY2011 revenue of $332.4 million, up 54.2 per cent y-o-y, was mainly driven by acquisitions.

Significant net profit decline of $335.7 million was dragged by lower revaluation gains and higher debt costs in FY2011. A dividend of 11 cents was announced along with FY2011 results. While the stock offers value for quality portfolio, leasing momentum for its office assets would likely be the near-term driver for share price but facing occupancy risks on challenging leasing environment. 'Neutral' maintained with an unchanged TP of $2.36.

We also note for OUE's asset portfolio, generally appraised values are unchanged in FY2011 versus FY2010, which reflects stabilisation. However we are less sanguine moving forward for OUE's office portfolio, and believe asset appraisals are likely to be on a downward trajectory on the back of challenging leasing environment and ample office supply looming.

At DBS Towers, while current signing rents at about $7 psf levels are above current passing rents of $5.62 psf, the impending relocation of DBS to Marina Bay Financial Centre Phase 3 occupying about 55 per cent of leases expiring in FY2012 raises concerns on NPI contraction in FY2013 due to the large space to refill.

One Raffles Place Tower 2 (ORP) and OUE Bayfront are currently about 42 per cent and about 82 per cent committed respectively, with a lack of leasing momentum to date. Large leasing deals are understandably in talks for ORP and DBS Towers, but negotiations are protracted due to dampening effect of macro uncertainties.

Management reaffirmed weak buying interest, especially from foreigners persisting for Twin Peaks due to weakened sentiment from recent additional buyer's stamp duty measures. This reinforces our negative view of the high-end segment.
NEUTRAL