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UOL’s Strong Investment Property Portfolio and Equity Investments Hold the Fort

UOL Group Limited (SGX: U14) reported a slight decline in net profits excluding one-offs for the second quarter of 2019.

UOL is a Singapore-listed property company with S$20 billion of assets under management. The property group has its fingers in many aspects of the property market, such as property development, property investments, and hotels operations.

Muted financials, but bright outlook

Let’s start with some numbers. For the quarter ended 30 June 2019, UOL group reported a 7% decline in pre-tax profit to S$141.8 million, excluding fair value gains. This decline in earnings was due to lower profit from property development and higher finance expenses. Including fair-value gains, the group saw a 50% increase in pre-tax profit to S$323.7 million.

Property development revenue and profit are often lumpy because developers can only recognise them once the development has been completed. Because of this accounting requirement, investors need to be patient and look at revenue and profit growth over a longer time frame instead of on a quarterly basis.

Another way investors can assess the company is by looking at its property sales figures. This should give investors an indication of how well the business is doing. On this front, UOL reported in that it saw a 6% increase in project uptake in the first half of 2019. Two of its projects, Amber45 and The Tre Ver, are about 80% sold, and they are targeting the launch of a new project (Avenue South Residence) by the end of the month.

Additionally, UOL expects steady demand and lower vacancy levels for offices to support rental rates, while noting that retail rents will remain under pressure thanks to tepid economic growth.

Stability from investments

While revenue and profit saw declines during the quarter due to the property development segment, UOL’s solid results were due to its investments.

The first of these was from the revaluation of its properties, which came in at S$195.4 million. This was on the back of a world-class portfolio of properties that UOL owns.

Secondly, UOL also saw a bump due to higher dividend income from its stakes in United Overseas Bank Ltd and Haw Par Corporation. These two listed companies have seen growing dividends over the past year, which has led to a higher income for UOL. These investments thus provide UOL’s financials with stability due to the lumpy nature of property development.

Conclusion

To sum up, while UOL reported a decline in revenue, it was mostly due to lower revenue recognition from its property development segment.  With its wide property asset base and investments in other listed entities, investors should remain patient, because when one segment underperforms, other segments can help to hold down the fort, as seen in its latest earnings report.

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Motley Fool writer Esjay contributed to this article. Esjay does not own shares in UOL Group.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of United Overseas Bank Ltd and Haw Par Corporation. Motley Fool Singapore contributor Tim Phillips doesn’t own shares in any companies mentioned.