Brokers' take

UOL Group | Buy (Upgrade) June 27 close: S$7.69 Target price: S$8.39 OCBC Investment Research, June 27

UOL announced an option agreement with Haw Par Corporation Ltd (Haw Par) under which UOL will have a call option and Haw Par a put option for UOL to allot and issue approximately 27.3 million new shares of UOL in exchange for 60 million UIC shares that Haw Par owns. Upon completion, UOL's interest in UIC will increase from 44.71 per cent to 48.94 per cent and we understand that the SIC has waived UOL's obligation to make a mandatory general offer as long as it does not cross the 49 per cent threshold.

We believe UOL's move makes strategic sense. This swap will enable UOL to acquire a significant UIC minority interest which is otherwise not available given the lack of trading liquidity. More importantly, from our analysis, the transaction will be accretive for UOL, which will deepen its effective ownership stake in desirable UIC assets, such as Singapore Land Tower and Marina Square, that it already understands well. We update our valuation model for the swap, firmer residential average selling prices and also reduce our RNAV discount from 25 per cent to 20 per cent.