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UOL raises concerns about rising land prices

Q2 earnings down 55% year on year at S$68.8m on the back of fair value losses on investment properties


UOL Group, which is involved in property and hospitality, has raised concerns about rising private residential land prices amid the strong appetite from developers and a scarcity of state land sales.

Its deputy group chief executive Liam Wee Sin said: ". . .with the intense competition and lack of confirmed sites in the Government Land Sales (programme), our concern is that land prices will be driven to an unhealthy level."

The group posted a 55 per cent year-on-year drop in second quarter net earnings to S$68.81 million - mainly on the back of fair value losses on investment properties due to softening Singapore office rents.

"Most of our Singapore residential projects have achieved relatively good take-up rates due to our strong product attributes," Mr Liam said on Thursday evening, after the release of the group's results.

Despite not launching any new projects in the first six months, the group sold about 320 private homes in Singapore over the period, gaining traction from existing projects on the market - including the 797-unit Botanique at Bartley, which was 91.7 per cent sold as at end-June; the figure has since risen to 97 per cent. UOL began selling the project in April last year.

The 663-unit Principal Garden in Prince Charles Crescent, launched last October, was 33.5 per cent sold as at end-June; sales have now crossed the 40 per cent mark. Riverbank@Fernvale, a 555-unit condo, was 72.4 per cent sold as at end-June; the figure is now nearly 80 per cent.

For the whole of last year, the group sold just over 900 private homes.

The group plans to launch in the first quarter of next year a 505-unit condo along Clementi Avenue 1. The 40-storey project, to be built using prefabricated pre-finished volumetric construction (PPVC), a high-productivity construction method, is a joint venture with Singapore Land.

UOL's attributable fair value losses and other losses totalled S$21.5 million for the second quarter ended June 30, against a S$53.8 million gain in the previous corresponding quarter.

The pretax profit before fair value and other gains/losses fell 8 per cent to S$105.77 million.

Gross profit margin fell to 34 per cent for Q2 FY2016 from 40 per cent in Q2 FY2015 - primarily due to higher revenue from property development, which has higher cost margins; higher property development margin in 2015 and lower dividend income received.

Revenue rose 6 per cent to S$363.55 million in Q2 FY2016 from the previous year. The increase in revenue was due mainly to higher progressive revenue recognition from ongoing projects such as Riverbank@Fernvale, Seventy Saint Patrick's, Botanique at Bartley as well as Principal Garden.

Property development revenue was up 14 per cent to S$185.48 million in Q2 FY2016.

Gross revenue from hotel ownership and operations rose 3 per cent to S$101.11 million. Revenue from property investments inched up to S$55.14 million from S$54.88 million.

Dividend income from available- for-sale financial assets contracted 23 per cent to S$16.77 million chiefly because of lower dividends received from the group's investment in United Overseas Bank.

Earnings per share declined to 8.64 Singapore cents in Q2 FY2016 from 19.36 Singapore cents in the year-ago period. Net asset value per share eased to S$9.80 as at June 30, 2016, from S$9.91 as at Dec 31, 2015.

The counter closed one Singapore cent lower on Thursday at S$5.84.

The group's gearing ratio crept up to 0.29 time as at June 30, 2016, from 0.27 time as at Dec 31, 2015 - with new loans for the group's acquisition of 110 High Holborn, a mixed-use property in London, and advances to a joint venture company to fund its acquisition of the 99-year private residential site at Clementi Avenue 1.

For the first half ended June 30, the group's net earnings retreated 36 per cent to S$145.88 million. The pretax profit before fair value and other gains/losses dipped 2 per cent to S$199.33 million. Revenue climbed 19 per cent to S$693.67 million.