UOL Q3 profit up 600% on UIC deal

Fri, Nov 10, 2017

Kalpana Rashiwala

UOL Group posted a 609 per cent jump in net profit to S$618.1 million for the third quarter ended Sept 30, 2017, on the back of a S$542.1 million gain on acquisition and consolidation arising from accounting for United Industrial Corporation (UIC) as a subsidiary.

This follows UOL's acquisition of 60 million UIC shares from Haw Par Corporation, which was completed on Aug 31 this year. Following the purchase, UOL's stake in UIC has risen to 48.96 per cent from 44.71 per cent previously.

UOL said in a news release: "The gain on acquisition and consolidation arose from the application of the accounting standards on business combinations which require the acquirer when buying a business to allocate the purchase price into the fair value of the various assets and liabilities acquired from the transaction.

"As a result of this exercise, UOL recorded a fair value uplift of S$421.1 million to property, plant and equipment, which would result in higher depreciation in future; and a S$82.3 million fair value uplift to development properties which will lead to less development profit to be recognised for certain development projects in future," the group said.

UOL has up to a year from Aug 31 to finalise the purchase price allocation, it added.

The S$421.1 million fair value uplift is mainly for three hotels in the Marina Centre area - Pan Pacific, Marina Mandarin and Mandarin Oriental. The S$82.3 million fair value uplift to development properties relates to The Clement Canopy condo project in Singapore and the Park Eleven project in Shanghai.

Net profit excluding other gains of S$527.2 million - the S$542.1 million gain on acquisition and consolidation, less S$14.9 million in business acquisition costs in relation to the purchase of the Hilton Melbourne South Wharf, which has been rebranded to Pan Pacific Melbourne - amounted to S$90.9 million for Q3 FY2017, up 8 per cent from the year-ago period.

The increase was due mainly to higher profit from property development and investment as well as higher contributions from joint-venture companies.

Group revenue in Q3 FY2017 climbed S$144.5 million or 37 per cent to S$537.9 million from S$393.4 million in Q3 FY2016. The increase was due mainly to the consolidation of UIC Group and the associated and joint venture companies of UOL Group and UIC Group, which contributed an additional S$144.3 million in revenue.

Excluding the effects of this consolidation, progressive recognition of revenue from development properties was lower by S$6.0 million or 3 per cent, largely because of the completion of Riverbank@Fernvale in March this year. On the other hand, revenue from hotel operations improved by 5 per cent or S$5.5 million with new revenue from the Melbourne hotel; its acquisition was completed in late July this year.

Net asset value per share rose to S$10.95 as at Sept 30, 2017, from S$10.10 as at Dec 31, 2016.

The counter ended three Singapore cents higher at S$8.80 on Thursday. UOL announced its results after the market closed.

Group gearing ratio inched up to 0.25 at the end of September 2017 compared to 0.24 on Dec 31, 2016, as higher borrowings of the consolidated group were largely offset by the increase in total equity.

UOL said that Singapore office rents are expected to stabilise on the back of a more positive economic outlook. However, retail rentals will continue to be under pressure from new supply and a challenging retail environment.

"The group's hotels in Asia-Pacific, particularly those in the People's Republic of China and Myanmar, continue to face competitive pressures and oversupply of rooms," it added.

The group revealed that it will redevelop the 206-room Pan Pacific Orchard hotel into a new 340-room hotel. The existing property will stop operating from Q2 2018.

Next year, the group is targeting to launch a new condo with about 750 units on the Raintree Gardens site in Potong Pasir as well a condo of about 140 units at 45 Amber Road.

It expects to launch in 2019 a new project on the Nanak Mansions site along Meyer Road. Acquisition of the site is expected to be completed next month.This project is an equal joint venture with Kheng Leong.