Daiwa kept shares of OUE at Buy despite its first-half earnings missing its forecasts and spurring cuts to its earnings outlook, saying the shares offer “deep value.”
The stock has been “languishing” this year and is now trading at a 55 percent discount to the bank’s net asset value of S$3.50 and a 65 percent discount to its book value per share (BVPS) of S$4.50 as of the end of June, Daiwa said.
OUE is “backed by strategic stakes in its commercial and hospitality REITs and meaningful income-producing commercial assets (OUE Downtown, Downtown Gallery and US Bank Tower) that could be monetised at some stage,” Daiwa said.
OUE reported last week in its earnings results that its first half revenue fell 22.8 percent on-year to S$296.3 million, while its net attributable profit fell 64.9 percent on-year in the first half to S$6.4 million and its earnings before interest, tax, depreciation and amortization, or ebitda, rose 23.7 percent on-year to S$105.2 million.
Daiwa said in a note this week that the gross revenue and ebitda made up 38 percent and 42 percent respectively of its pre-results 2018 forecasts.
“The revenue misses came from the absence of revenue recognition for the deferred-payment scheme sales in OUE Twin Peaks and a weaker-than-expected 2.5 percent half-on-half increase in the investment property division, possibly due to an underwhelming operating performance in Downtown Gallery, which opened in May 2017,” Daiwa said.
Daiwa cut its revenue forecast for OUE by 18 percent for this year, but raised its revenue forecasts for 2019-20 by 9.9-16.5 percent.
It forecast around S$60 million of property-development recognition in the second half of this year and another S$400 million over 2019-20 for OUE Twin Peaks units purchased under the deferred-payment program.
But it added that since it was assuming the units were sold near their breakeven levels, the earnings impact would be negligible.
It lowered its 2018-20 earnings per share forecasts excluding revaluation gains by 10-20 percent on lower ebitda forecasts for OUE Downtown and Downtown Gallery on challenging leasing conditions and short-term oversupply for central business district (CBD) retail space.
It also cut its target price on the shares to S$2.45 from S$2.59.
Shares of OUE were flat at S$1.57 at 9:35 A.M. SGT on Friday.