No Slowdown In Sight For Property Developer UOL Group Limited

Despite persisting fears over the slowdown in Singapore’s property market, UOL Group Limited (SGX: U14) seemed to have shrugged off most worries. In fact, the property developer, investor, and manager had just posted a 66% year-on-year increase in revenue for its third quarter earnings which was announced yesterday evening.

The huge boost in revenue for the quarter was due to the completion of The Esplanade in China, and stronger contribution from the PARKROYAL brand of hotels and Pan Pacific Serviced Suites. UOL’s bottom-line didn’t grow that much, but still managed to clock in a healthy 10% year-on-year increase to S$102.6 million.

For the first nine months of 2014, UOL recorded revenue of S$1.056 billion, up 30% from a year ago. The company also received better profit contribution from its associate, United Industrial Corporation Ltd (SGX: U06) – profit from UIC was up 25% year-on year to S$83.9 million. Consequently, the company’s operating profit grew by 29% to S$411.1 million.

However, due to much lower fair value gains recorded in 2014 so far, the net profit for UOL is actually down 27% to S$494.6 million compared to a year ago. Although it might not be comforting for investors to see a decline in net profit, I believe that it’s the operating profit of UOL which can give a much better reflection of how it’s performing. On that note, and as mentioned earlier, the company’s doing pretty fine with a 29% uptick in operating profit.

Moving on to more detail for the first three quarters of 2014, revenue from all segments of UOL’s business had grown. Revenue from the company’s property development and property investment segments grew by 64% and 9% respectively. Meanwhile, the company’s hotel-related segments saw revenue increases in the mid-single digits.

Despite the healthy growth, there’s still one area of concern with the company and that is its higher gearing. As of 30 September 2014, UOL’s gearing ratio is at 0.35, an increase from the ratio of 0.28 seen at the end of 2013. The company’s balance sheet had weakened as it had to borrow more to finance certain acquisitions. During the year, UOL had bought two sites in Singapore and one more in London for a combined sum of S$1.056 billion. These purchases had helped to nearly double the value of UOL’s development properties from S$895.4 million at the end of 2013 to S$1.7 billion currently.

Foolish Summary

Although there are worries about headwinds for its industry, it seems that UOL is not as pessimistic, judging from its acquisition spree.

That said, investors might want to keep an eye on a few areas. In the earnings release, the company mentioned that prices of private residential properties in Singapore have fallen yet again in the third quarter, though the decrease had taken place at a slower pace. In addition, the company also commented that there might be a slowdown in the Asia Pacific hotel industry and that retail rents would not be able to grow easily given that retailers “have to contend with rising labour and operating costs.”

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.