Asia Pacific Equity Research 09 December 2014

Underweight

Overseas Union Enterprise Ltd

Previous: Not Rated

Waiting for the next catalyst; assuming coverage with an UW rating

Price: S$2.03

OVES.SI, OUE SP Price Target: S$2.10

We assume coverage of OUE with an UW rating and Dec-15 PT of S$2.10 (Neutral rating and Dec-14 PT of S$2.45 prior to NR designation). While OUE’s office exposure should benefit from the continued rent recovery story, its hospitality portfolio is not immune to rising headwinds from sizeable hotel room completions over the next two years. With a majority of the group’s wholly owned quality assets already injected into its two listed REITs, acquisitions of undervalued properties will likely be key share price catalysts.  Mix of domestic and offshore office exposure. Office contributes about 60% of OUE’s GAV, the majority of which is attributable to its Singapore portfolio, which should benefit from the rent recovery story. Nonetheless, OUE Bayfront has already been injected into its office REIT, while OUE Downtown's integrated serviced apartment and retail components are in the midst of major asset enhancement plans. As for US Bank Tower, we expect the group to explore a potential divestment as office rents recover in line with the U.S. economy.  Asset injections more medium-term. OUE has built up a fund management platform of S$3.6b in AUM in less than two years by injecting a majority of its own assets into two REITs. However, following the recent divestment of Crowne Plaza Changi Airport, we think any upcoming asset injections will be more medium-term, as OUE Downtown/Downtown Gallery will be completed only in 2016. We think One Raffles Place is less likely in view of its associate stake.

Singapore Property Brandon Lee

(65) 6882-7073 [email protected] J.P. Morgan Securities Singapore Private Limited

Cusson Leung (852) 2800-8526 [email protected] J.P. Morgan Securities (Asia Pacific) Limited

James R. Sullivan, CFA (65) 6882-2374 [email protected] J.P. Morgan Securities Singapore Private Limited Price Performance 2.8 2.6 S$ 2.4 2.2 2.0 Dec-13

Mar-14

Jun-14

Sep-14

Dec-14

OVES.SI share price (S$) FTSTI (rebased)

Abs Rel

 Key catalysts. Capital recycling activities and acquisitions.

AC

YTD -18.8% -22.9%

1m -4.7% -4.6%

3m -11.7% -10.6%

12m -19.1% -25.0%

 Valuation and risks. Our Dec-15 PT of S$2.10 is derived via a 50% discount to our forward RNAV estimate of S$4.25. Key risks include office leasing efforts impacted by sizeable office completions in 2016-17 and sustained competitive headwinds within Singapore’s hotel subsector. Overseas Union Enterprise Ltd (Reuters: OVES.SI, Bloomberg: OUE SP) S$ in mn, year-end Dec FY12A FY13A FY14E FY15E Revenue (S$ mn) 418 437 235 265 Net Profit (S$ mn) 90 (37) 981 64 EPS (S$) 0.10 (0.04) 1.08 0.07 Core EPS (S$) 0.11 0.05 0.05 0.06 DPS (S$) 0.11 0.23 0.05 0.05 Revenue growth (%) 25.7% 4.5% (46.2%) 12.8% EPS growth (%) (71.3%) (140.6%) (2782.6%) (93.5%) ROCE 3.0% 1.3% 1.7% 1.8% ROE 3.2% 1.4% 1.4% 1.4% P/E (x) 20.5 NM 1.9 29.0 Core P/E (x) 18.8 42.5 41.0 35.8 P/BV (x) 0.6 0.5 0.5 0.5 EV/EBITDA (x) 14.9 23.2 27.7 21.6 Dividend Yield 5.4% 11.3% 2.5% 2.5% RNAV/Share -

FY16E 300 236 0.26 0.07 0.05 13.3% 270.5% 2.0% 1.8% 7.8 28.1 0.4 18.3 2.5% -

Company Data Shares O/S (mn) Market Cap (S$ mn) Market Cap ($ mn) Price (S$) Date Of Price Free Float(%) 3M - Avg daily vol (mn) 3M - Avg daily val (S$ mn) 3M - Avg daily val ($ mn) FTSTI Exchange Rate Price Target End Date

910 1,847 1,396 2.03 08 Dec 14 38.4% 0.49 1.03 0.8 3324.39 1.32 31-Dec-15

Source: Company data, Bloomberg, J.P. Morgan estimates.

See page 11 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.jpmorganmarkets.com

Asia Pacific Equity Research 09 December 2014

Brandon Lee (65) 6882-7073 [email protected]

Key catalysts for the stock price: • Any asset sale which more than validates the group's current NTA • Capital redeployment of divestment proceeds into RNAV/earnings-accretive projects

Upside risks to our view: • Asset divestments at above book values • Better-than-expected growth in Singapore office rents • Hotel RevPAR recovery amid sustained growth in tourist arrivals • Sector recovery in the high-end residential market

Key financial metrics Revenues (LC) Revenue growth (%) EBIT (LCm) EBIT Growth (%) Asc/JV (LCm) Reported PATMI (LCm)

FY13 437 4.5% 140 -23.7% 47 -37

FY14E 235 -46.2% 107 -23.5% 54 981

FY15E 265 12.8% 116 8.6% 56 64

FY16E 300 13.3% 139 19.6% 57 236

Operating PATMI (LCm)

43 140.6% -55.8% -4.02 4.77 23

45 2782.6% 3.7% 107.78 4.95 5

52

66

-93.5% 14.6% 7.00 5.68 5

270.5% 27.2% 25.93 7.22 5

Reported PATMI Growth (%) Operating PATMI Growth (%) Reported EPS (LC cts) Operating EPS (LC cts) DPS (LC cts) BVPS (LC)

4

4

4

5

Yield (%) P/B (x) Net Debt to Assets (%) Net Gearing (%) ROE (%) Key model assumptions

11.3% 0.53 31.3% 69.6% 1.5% FY13

2.5% 0.46 31.6% 57.8% 1.3% FY14E

2.5% 0.45 28.7% 52.3% 1.4% FY15E

2.5% 0.43 27.2% 48.7% 1.7% FY16E

Commercial segment rev (S$MM) Residential segment rev (S$MM) EBIT margin (%)

79.6 55.0 32.0%

81.5 75.9 45.5%

95.4 89.1 43.8%

129.8 85.4 46.3%

Source: Company and J.P. Morgan estimates.

Downside risks to our view: • Planning and execution capabilities on a number of asset enhancement initiatives • Protracted Hotel RevPAR decline • Entrance into non-core property subsectors or geographies

Valuation and price target basis Our Dec-15 price target of S$2.10/share is based on a 50% discount to our RNAV of S$4.25/unit.

Valuation Average prem/(disc) to RNAV

-43%

1 s.d. above average prem/(disc) to RNAV 1 s.d. below average prem/(disc) to RNAV Max prem/(disc) to RNAV Min prem/(disc) to RNAV

-36% -50% -29% -54%

Source: Bloomberg, Company and J.P. Morgan estimates.

FY15E GAV breakdown Hospitality 18%

Sing. resi 9% Sing. retail 12% Office 61%

Source: J.P. Morgan estimates.

Sensitivity analysis Sensitivity to 10% chg in SG residential price assump 10% chg in SG commercial price assump 10% chg in overseas residential price assump 10% chg in overseas commercial price assump

GAV impact

RNAV impact

FY14E

FY15E

1% 5% N/A

1% 8% N/A

JPMe old JPMe new % chg

0.04 0.05 18%

0.04 0.06 31%

0%

0%

Consensus

0.06

0.08

Source: J.P. Morgan estimates.

JPMe vs. consensus, change in estimates EPS (LC)

Source: Bloomberg, J.P. Morgan estimates.

Comparative metrics

CapitaLand City Developments Keppel Land Overseas Union Enterprise Global Logistic Properties Source: Bloomberg, J.P. Morgan estimates.

2

Price (S$) 5-Dec-14 3.29 9.86 3.35 2.03 2.63

Mkt cap ($M) 14,011 8,966 5,176 1,847 12,728

RNAV Current % disc 5.83 -44% 12.54 -21% 5.86 -43% 4.25 -52% 3.30 -20%

Core P/E (x) FY14E 23.1 14.9 13.1 41.0 43.9

FY15E 18.6 14.3 12.5 35.8 39.6

P/BV (x) FY14E FY15E 0.9 0.8 1.1 1.0 0.7 0.6 0.5 0.5 1.1 1.0

ROE 7.6% 7.3% 5.2% 1.3% 8.0%

Brandon Lee (65) 6882-7073 [email protected]

Asia Pacific Equity Research 09 December 2014

Investment summary Company overview OUE Limited is a mid-cap property developer with a focus on prime real estate in the office, retail, hospitality and residential property subsectors in Asia and the U.S. The group has successfully executed several major asset-enhancement initiatives for office and retail assets over the past few years. OUE is committed to developing a portfolio with a strong recurring income base and has built its fund management platform with the listings of OUE Hospitality Trust and OUE Commercial REIT in Jul-13 and Jan-14, respectively.

A mix of domestic and offshore office exposure Office contributes about 60% of OUE’s GAV, the majority of which is attributable to its Singapore portfolio via OUE Downtown 1 and 2, as well as stakes of 48% and 41% in OUE Bayfront and One Raffles Place Towers 1 and 2, respectively. In view of limited supply in 2015, we expect its office buildings to continue benefitting from the rent recovery story. Occupancies for One Raffles Place remain at the high-80% to 90% level, with healthy enquiries and asking rents of S$10-12 psf/month, in line with spot rents in the vicinity. OUE Bayfront maintained a 100% occupancy rate as of Sep-14. 9M14 positive rent reversion of 10.2% was achieved on the back of committed rents of S$12.50-15.50 psf. However, OUE Downtown 1 is 50%-occupied, which we believe is due to the ongoing construction work for the project’s retail and serviced apartment components. Downtown 2, on the other hand, is 95%-occupied. As for US Bank Tower, we expect OUE to explore a potential divestment as office rents recover in line with the U.S. economy. US Bank Tower’s capital value has already expanded by 17%, to US$431m, as of Dec-13, less than two years after it was acquired. The group also has another office building in Shanghai called Lippo Plaza that is parked under its office REIT. Table 1: Office portfolio not under REITs

One Raffles Place (Tower 1) One Raffles Place (Tower 2) DBS Towers (office) US Bank Tower

RNAV FY15E (S$ M) 418 360 836 574

NLA (sqf) 450,000 350,000 528,906 1,432,539

Stake 41% 41% 100% 100%

Capital value FY15E (S$ psf) 2,280 2,520 1,694 400

Source: J.P. Morgan estimates. Note: Per-room data.

Building hospitality footprint OUE manages its hotels through its iconic hospitality brand – Meritus Hotels & Resorts. The bulk of its hospitality exposure (17% of GAV) comprises upscale hotels in Singapore, including Crowne Plaza Changi Airport (CPCA), which was recently injected into its hospitality REIT, as well as 34% and 30% interests in Mandarin Orchard and Marina Mandarin, respectively. Helped by growing tourist arrivals, CPCA continued to outperform the industry in 2013, with RevPAR growth of 5% vs. the market’s -1%. Contribution from this segment should get a boost following the

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Brandon Lee (65) 6882-7073 [email protected]

Asia Pacific Equity Research 09 December 2014

completion of CPCA Phase 2 (2H15) and another serviced apartment (2016) as part of the OUE Downtown integrated development. Table 2: Hotel portfolio

OUE Hospitality Trust Marina Mandarin Crown Plaza Changi Airport* Crown Plaza Changi Airport (Annex) Meritus Mandarin Haikou Shanghai JC Mandarin Meritus Pelangi Beach Resort & Spa

RNAV FY15E (S$ M) 481 157 258 196 161 40

NLA (sqf) NA 575 320 243 318 515 331

Stake 41% 30% 100% 100% 100% 50% 30%

Capital value FY15E (S$ per room) NA 912,500 805,920 805,920 187,714 625,714 406,714

Source: J.P. Morgan estimates. * Recently sold to OUE Hospitality Trust.

Asset injections more medium-term OUE has built up a respectable fund management platform of S$3.6b in AUM in less than two years by injecting a majority of its own assets into OUE Hospitality Trust and OUE Commercial REIT. However, following the recent divestment of Crowne Plaza Changi Airport, we think any upcoming asset injections will be more mediumterm, as OUE Downtown/Downtown Gallery will be completed only in 2016. We think One Raffles Place is less likely in view of its associate stake.

Key risks: Hospitality supply and residential slowdown While OUE’s Singapore hotel portfolio has performed relatively well so far in the face of competitive headwinds and slower corporate demand, we think a sustained period of sluggishness in this subsector could have a negative impact on earnings and capital values. Supply growth is sizeable at 6% in each of the next two years, which will prolong the ongoing competitive pressures. Take-up for Twin Peaks, a high-end 462-unit condominium that represents the group’s only residential exposure, remains subdued, at 16%. With the high-end space expected to underperform an already-tepid overall residential market (9% of GAV), we think price reductions could be necessary to clear more inventory. Alternatively, OUE could seek to rent the unsold units as corporate residences, in our view.

Fairly priced at current levels Our Dec-15 PT of S$2.10 represents a 50% discount to our forward RNAV estimate of S$4.25. OUE trades at a historical RNAV discount of 43%, steeper than the sector’s RNAV discount of 18%, but in line with the trading range of small-mid cap Singapore developers (a 40-50% discount). While OUE has been listed for a long time, it was only in 2010 that it saw major liquidity and free float improvements. The stock has been trading at a 49-50% discount to RNAV, in line with 1 SD below its mean, since residential prices began to decline in 4Q13 following the peak of the cooling measures. While the group is more operationally geared to the office segment (60% of GAV) vs. the less positive hospitality/residential (30% of GAV), its mid-cap status means that trading patterns are likely to take their cue from bigger-cap players. We assume RNAV discounts of 35-40% for the bigger-cap developers, which historically trade at narrower discounts of 10-15%pts than small- and mid-cap players. Coupled with our view that the downcycle is likely to continue into 2015-16, we employ an RNAV discount of 50% to value OUE.

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Asia Pacific Equity Research 09 December 2014

Brandon Lee (65) 6882-7073 [email protected]

Valuation Valuation summary Our Dec-15 PT of S$2.10 is pegged at a 50% discount to our forward RNAV estimate of S$4.25. OUE trades at a historical RNAV discount of 43%, steeper than the sector’s RNAV discount of 18%, but in line with the trading range of small-mid cap Singapore developers (a 40-50% discount). While OUE has been listed for a long time, it was only in 2010 that it saw major liquidity and free float improvements via stock placements in Jun-10 and Oct-10, as well as a 5-for-1 stock split in Jun-10. Therefore, its RNAV trading history is relatively shorter than for other developers under our coverage. The stock has been trading at a 49-50% discount to RNAV, in line with 1 SD below its mean, since residential prices began to decline in 4Q13 following the peak of the cooling measures. While the group is more operationally geared to the office segment (60% of GAV) vs. the less positive hospitality/residential (30% of GAV), its mid-cap status means that trading patterns are likely to take their cue from bigger-cap players. We assume RNAV discounts of 35-40% for the bigger-cap developers, which historically trade at narrower discounts of 10-15%pts than small-mid cap players. Coupled with our view that the downcycle is likely to continue into 2015-16, we employ an RNAV discount of 50% to value OUE. Figure 1: Historical RNAV premium/(discount)

Figure 2: Historical P/B

%

x

-20%

2.00 1.50

-30%

1.00

-40%

0.50 -50%

0.00

-60% Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 OUE +2 s.d.

Source: J.P. Morgan calculations, Bloomberg.

Mean -1 s.d.

Dec-13 Jun-14 +1 s.d. -2 s.d.

OUE +2 s.d.

Mean -1 s.d.

+1 s.d. -2 s.d.

Source: J.P. Morgan calculations, Company data, Bloomberg.

At our price target, the stock would trade at a 0.47x FY15E P/B and a 30.0x FY15E P/E, compared to the current P/B of 0.50x and P/E of 29.0x. The stock trades at a historical P/B of 0.93x.

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Brandon Lee (65) 6882-7073 [email protected]

Asia Pacific Equity Research 09 December 2014

Table 3: OUE: Premium/(discount) to RNAV summary

Table 4: OUE: P/B summary

%

x

Current S.D. Peak Trough Post-GFC peak Mean +1 s.d. +2 s.d. -1 s.d. -2 s.d. Source: J.P. Morgan estimates, Bloomberg.

-52.2% -134.8% -28.9% -53.5% N/A -43.1% -36.4% -29.7% -49.9% -56.6%

Current S.D. Peak Trough Post-GFC peak Mean +1 s.d. +2 s.d. -1 s.d. -2 s.d.

0.50 (1.56) 1.75 0.50 1.58 0.93 1.21 1.49 0.66 0.38

Source: J.P. Morgan estimates, Company data, Bloomberg.

Key assumptions Close to 90% of OUE’s RNAV is attributable to investment properties, largely in Singapore. We utilize the direct capitalization approach to value this recurring stream of rental income, dividing the property’s stabilized net operating income (NOI) by the market capitalization rate. For its commercial portfolio, NOI is equivalent to net property income (NPI), which is derived by summing up the rental revenue and other items (parking fees and service charges) from ownership of the building and then subtracting direct operating expenses, such as insurance, property management fees, utilities and property taxes. For its hospitality portfolio, NOI is equivalent to the asset’s EBITDA, which is derived by subtracting fixed charges from gross operating profit (GOP) and adding back depreciation charges. GOP is calculated by summing room revenue (RevPAR per night multiplied by total room nights) and other revenue items. Our assumed cap rates, rental rates and RevPAR are based on inputs from both management guidance and property consultants. For Singapore, we assume an office cap rate of 4.0-4.3%, retail cap rate of 5% and hotel cap rate of 5.0-6.3%. For the group’s Singapore residential portfolio, we assume that overall prices will fall 4% in 2015, led by high-end (-5%), midrange (-4%) and mass market (-3%). We factor in the latest share prices for OUE’s stakes in OUEHT and OUECT, given that we do not have coverage of the stocks, whereas the group’s S$3.3b fund management platform is valued at a P/E multiple of 10x, in line with global comps.

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Brandon Lee (65) 6882-7073 [email protected]

Asia Pacific Equity Research 09 December 2014

Table 5: RNAV composition 2015E (S$ M) Residential properties Singapore Overseas Commercial properties Singapore Overseas Hospitality assets Fund Management OUE Hospitality Trust OUE Commercial REIT Adjustment for OUECT debt Off balance sheet adjustments Gross asset value Cash & equivalents Total borrowings Other payables (withholding tax) Net asset value NAV per share Number of shares (millions)

541 0 2,409 574 660 92 481 356 698 5,811 458 (2,348) (54) 3,867 4.25 910

Source: J.P. Morgan estimates.

Sensitivity analysis Our sensitivity analysis shows that OUE’s RNAV will increase by 7% for every 10% rise in office rent and by 2% for every 10% increase in RevPAR.

Financial analysis OUE posted a net loss of S$37m in FY13, largely due to net fair value losses recognized on OUE Bayfront and OUE Downtown. Adjusting for these one-off revaluation items, core PATMI would have fallen 56% YoY, to S$43m. We forecast a 4% YoY increase in FY14 core PATMI, to S$45m, underpinned by the maiden contribution from the completion of One Raffles Place’s retail AEI, which began operations in May-14, and a full-year contribution of US Bank Tower (acquired in Jun-13). Investment Properties will continue to be the top EBIT contributor (71% of total), followed by hospitality (26% of total). Due to the completion of the 243-room Crowne Plaza Changi Airport Hotel Phase 2 in 2H15, FY15 core PATMI should improve 15%, to S$52m. The completions of Downtown Gallery and OUE Downtown’s serviced apartments in 2016 should result in a 27% increase in FY16 core PATMI, to S$66m. OUE’s net gearing stood at 45% as of Sep-14, which implies additional debt headroom of S$220-630m for acquisitions before reaching 50-60%. We expect the group’s net gearing to creep up to 50-55% over the next few years in view of capex requirements for its two ongoing asset refurbishments.

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Asia Pacific Equity Research 09 December 2014

Brandon Lee (65) 6882-7073 [email protected]

Comparative valuation Table 6: S-Developers comparative valuation Developer CapitaLand City Developments Keppel Land Overseas Union Enterprise Total / weighted average

Price (S$) 5-Dec-14 3.29 9.86 3.35 2.03

Mkt cap ($M) 14,011 8,966 5,176 1,847 30,000

Share price performance 3M 6M YTD -2.1% 1.9% 7.6% 1.0% -3.2% 3.6% -3.2% -3.2% 0.3% -11.7% -15.1% -13.7% -1.9% -1.6% 3.8%

RNAV Current % disc 5.83 -44% 12.54 -21% 5.86 -43% 4.25 -52% -37%

Core P/E (x) FY14E FY15E 23.1 18.6 14.9 14.3 13.1 12.5 41.0 35.8 20.0 17.3

P/BV (x) FY14E FY15E 0.85 0.80 1.05 0.97 0.68 0.63 0.46 0.45 0.86 0.80

Net gearing 59.9% 36.4% 36.8% 44.6% 48.0%

ROE 7.6% 7.3% 5.2% 1.3% 6.7%

Source: J.P. Morgan estimates, Bloomberg, Company data.

Even though OUE is trading below its book value, at a FY14E/FY15E P/B of 0.46x/0.45x, it is on the expensive side in terms of P/E due to weak earnings, at 41.0x/35.8x compared to the industry average of 20.0x/17.3x. The gearing ratio stands at 44.6%, and ROE is low at 1.3%. OUE trades at a 52% discount to our RNAV estimate of S$4.25, below the sector average discount of 37%.

Investment Thesis, Valuation and Risks Overseas Union Enterprise Ltd (Underweight; Price Target: S$2.10) Investment Thesis OUE is an integrated real estate developer with a presence across various cities regionally and in the U.S. Having recycled a significant portion of the group’s assets (with an existing cash balance of more than S$700m), potential catalysts for the stock could come from the deployment of proceeds into new asset developments. Valuation Our Dec-15 PT of S$2.10 is based on a 50% discount to our forward RNAV estimate of S$4.25 per unit. Average premium/(discount) to RNAV 1 s.d. above average prem/(disc) to RNAV 1 s.d. below average prem/(disc) to RNAV Max prem/(disc) to RNAV Min prem/(disc) to RNAV

-43% -36% -50% -29% -53%

Source: J.P. Morgan estimates.

Risks to Rating and Price Target Key downside risks include planning and execution capabilities on a number of asset-enhancement initiatives, a protracted hotel RevPAR decline and the entry into non-core property subsectors or geographies. Key upside risks include any asset sale that more than validates the group’s current NTA, better-than-expected growth in Singapore office rents, a hotel RevPAR recovery amid sustained growth in tourist arrivals, and a recovery in the high-end residential market.

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Asia Pacific Equity Research 09 December 2014

Brandon Lee (65) 6882-7073 [email protected]

Overseas Union Enterprise Ltd: Summary of Financials Income Statement S$ in millions, year end Dec Revenues % change Y/Y EBIT % change Y/Y EBIT Margin (%) Net Interest Earnings before tax % change Y/Y Tax as % of EBT Net income (reported) % change Y/Y Core net profit % change Y/Y Shares outstanding EPS (reported) (S$) % change Y/Y DPS % change Y/Y Balance sheet S$ in millions, year end Dec Cash and cash equivalents Accounts receivable Inventories Others Current assets

FY13 437 4.5% 140 (23.7%) 32.0% (93) 94 (15.2%) (44) 47.0% (37) (140.6%) 43 (55.8%) 910 (0.04) (140.6%) 0.23 109.1%

FY14E 235 (46.2%) 107 (23.5%) 45.5% (96) 65 (31.3%) (4) 5.7% 981 (2782.6%) 45 3.7% 910 1.08 (2782.6%) 0.05 (78.3%)

FY15E 265 12.8% 116 8.6% 43.8% (96) 76 17.4% (7) 9.1% 64 (93.5%) 52 14.6% 910 0.07 (93.5%) 0.05 0.0%

FY16E 300 13.3% 139 19.6% 46.3% (97) 99 30.3% (15) 14.8% 236 270.5% 66 27.2% 910 0.26 270.5% 0.05 0.0%

FY13 731 22 848 21 1,621

FY14E 271 16 753 21 1,061

FY15E 458 18 718 21 1,215

FY16E 497 21 627 21 1,165

694 6,564

663 6,586

350 16 11 377 1,998 133 2,508 3,595 4.46

350 8 11 369 1,998 137 2,503 3,614 4.49

LT investments Net fixed assets 367 Total Assets 6,418 Liabilities ST Loans 350 Payables 87 Others 11 Total current liabilities 447 Long-term debt 2,392 Other liabilities 64 Total Liabilities 2,903 Shareholders' equity 2,892 BVPS 3.86 Source: Company reports and J.P. Morgan estimates.

Cash flow statement S$ in millions, year end Dec EBIT Depr. & amortization Change in working capital Others Cash flow from operations

FY13 140 22 (36) 154 104

FY14E 107 16 (92) (1,029) (124)

FY15E 116 31 24 49 168

FY16E 139 30 90 (104) 252

Capex Disposal/(purchase) Net Interest Free cash flow

(7) 0 (93) 146

0 0 (96) (33)

0 0 (96) 255

0 0 (97) 334

Equity raised/(repaid) Debt raised/(repaid) Other Dividends paid Beginning cash Ending cash DPS

578 166 (99) (264) 605 730 0.23

0 228 388 (45) 731 271 0.05

0 0 (105) (45) 271 458 0.05

0 0 (107) (45) 458 497 0.05

FY13 32.0% 10.0% -

FY14E 45.5% 19.2% -

FY15E 43.8% 19.5% -

FY16E 46.3% 21.9% -

4.6% 4.5% (140.6%) (140.6%) 1.7 36.4% 57.2% 0.1 2.0 1.4% 1.3%

(46.2%) (46.2%) (2782.6%) (2782.6%) 1.3 33.9% 51.2% 0.0 2.0 1.4% 1.7%

12.8% 12.8% (93.5%) (93.5%) 1.5 31.6% 46.3% 0.0 1.8 1.4% 1.8%

13.3% 13.3% 270.5% 270.5% 1.7 30.2% 43.2% 0.0 1.8 1.8% 2.0%

Ratio Analysis S$ in millions, year end Dec EBIT Margin (%) Net profit margin SG&A/Sales

Sales per share growth - Sales growth 633 Net profit growth 6,794 EPS growth Interest coverage (x) 350 Net debt to total capital 10 Net debt to equity 11 Sales/assets (x) 370 Assets/equity (x) 1,998 ROE 144 ROCE 2,512 3,804 4.71

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Asia Pacific Equity Research 09 December 2014

Brandon Lee (65) 6882-7073 [email protected]

JPM Q-Profile OUE Ltd. (SINGAPORE / Consumer Discretionary) As Of: 05-Dec-2014

[email protected]

Local Share Price

Current:

2.03

12 Mth Forward EPS

Current:

0.09

0.20

4.00

0.18

3.50

0.16

3.00

0.14

2.50

0.12

2.00

0.10

1.50

0.08 0.06

1.00

0.04

0.50

0.02

PE (1Yr Forward)

Current:

23.3x

30.0x

P/E Relative to Singapore Index

Current:

Jul/14

Nov/13

Jul/12

Mar/13

Nov/11

Jul/10

Mar/11

Nov/09

Jul/08

Mar/09

Nov/07

Jul/06

Mar/07

Nov/05

Jul/04

Mar/05

Nov/03

Jul/02

Mar/03

Nov/01

Jul/00

Mar/01

0.00 Nov/99

Nov/14

Feb/14

Aug/12

May/13

Nov/11

Feb/11

Aug/09

May/10

Nov/08

Feb/08

Aug/06

May/07

Nov/05

Feb/05

Aug/03

May/04

Nov/02

Feb/02

Aug/00

May/01

Nov/99

0.00

1.71

2.50

25.0x

2.00

20.0x 1.50 15.0x 1.00 10.0x 0.50

5.0x

9%

12Mth fwd EY

Current:

Singapore BY

4%

Dividend Yield (Trailing)

Current:

Jul/14

Nov/13

Mar/13

Jul/12

Nov/11

Mar/11

Jul/10

Nov/09

Mar/09

Jul/08

Nov/07

Mar/07

Jul/06

Nov/05

Mar/05

Jul/04

Nov/03

Jul/02

Mar/03

Mar/01

Nov/01

Jul/00

Jul/14

Nov/13

Mar/13

Jul/12

Mar/11

Nov/11

Jul/10

Nov/09

Mar/09

Jul/08

Nov/07

Mar/07

Jul/06

Nov/05

Jul/04

Mar/05

Nov/03

Mar/03

Jul/02

Nov/01

Mar/01

Jul/00

Nov/99

Earnings Yield (& Local Bond Yield)

Nov/99

0.00

0.0x

1.32

40.0

Proxy

8%

35.0

7%

30.0

6%

25.0

5%

20.0

4%

ROE (Trailing)

Current:

26.44

60.00

Price/Book (Value)

Current:

2.0x

P/B Trailing

Jul/14

Nov/13

Mar/13

Jul/12

Nov/11

Mar/11

Jul/10

Nov/09

Mar/09

Jul/08

Nov/07

Mar/07

Jul/06

Mar/05

Nov/05

Jul/04

Mar/03

Nov/03

Jul/02

Mar/01

Nov/01

Nov/99

Jul/14

Nov/13

Mar/13

Jul/12

Mar/11

Nov/11

Jul/10

Mar/09

Nov/09

Jul/08

Nov/07

Mar/07

Jul/06

Nov/05

Mar/05

Jul/04

Nov/03

Mar/03

Jul/02

Nov/01

0.0

Mar/01

5.0

0% Jul/00

10.0

1% Nov/99

2%

Jul/00

15.0

3%

0.5x

P/B Forward

1.8x

50.00

1.6x

40.00

1.4x

30.00

1.2x 1.0x

20.00

0.8x 10.00

0.6x 0.4x

0.00

0.2x Jul/14

Nov/13

Mar/13

Jul/12

Nov/11

Mar/11

Jul/10

Nov/09

Mar/09

Jul/08

Nov/07

Mar/07

Jul/06

Nov/05

Mar/05

Jul/04

Nov/03

Jul/02

Mar/03

Mar/01

Nov/01

Jul/00

0.0x Nov/99

Jul/14

Nov/13

Mar/13

Jul/12

Mar/11

Nov/11

Jul/10

Nov/09

Mar/09

Jul/08

Nov/07

Mar/07

Jul/06

Nov/05

Jul/04

Mar/05

Nov/03

Mar/03

Jul/02

Nov/01

Mar/01

Jul/00

Nov/99

-10.00

Summary OUE Ltd. SINGAPORE Consumer Discretionary 12mth Forward PE P/BV (Trailing) Dividend Yield (Trailing) ROE (Trailing)

1416.22 0.796552 TICKER OUE SP Hotels Restaurants & Leisure Latest Min Max 23.33x 0.50 0.50 1.86 1.32x 0.00 37.89 26.44 -4.42 50.00

Median

Average

2 S.D.+

2 S.D. -

0.94 1.67 5.20

1.02 3.62 12.62

1.62 19.28 43.58

0.42 -12.04 -18.34

Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, JPMorgan Quantitative & Derivative Strategy

10

5-Dec-14 As Of: Local Price: 2.03 EPS: 0.09 % to Min % to Max % to Med % to Avg 0% -100% -117%

271% 2764% 89%

87% 26% -80%

104% 174% -52%

Asia Pacific Equity Research 09 December 2014

Brandon Lee (65) 6882-7073 [email protected]

Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention.

Important Disclosures



Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Overseas Union Enterprise Ltd.



Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Overseas Union Enterprise Ltd.



Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking Overseas Union Enterprise Ltd.



Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Overseas Union Enterprise Ltd. Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan– covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail [email protected]. Overseas Union Enterprise Ltd (OVES.SI, OUE SP) Price Chart N S$2

6

N S$3.3

N S$2.7

N S$3.4 N S$2.6 N S$2.8 NR N S$3

4

N S$2.45 NR

Price(S$)

2

0 Jun 08

Mar 09

Dec 09

Sep 10

Jun 11

Mar 12

Dec 12

Sep 13

Date

Rating Share Price Price Target (S$) (S$)

25-Jun-11

N

2.84

3.40

05-Aug-11 N

2.73

3.30

14-Sep-11 N

2.14

2.00

04-Feb-12 N

2.23

2.60

11-Apr-12

N

2.33

2.70

08-Aug-12 N

2.54

2.80

31-Dec-12 NR

2.78

--

28-Apr-13

N

3.10

3.00

11-May-14 N

2.32

2.45

25-Aug-14 NR

2.33

--

Jun 14

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Break in coverage Dec 31, 2012 - Apr 28, 2013.

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy 11

Brandon Lee (65) 6882-7073 [email protected]

Asia Pacific Equity Research 09 December 2014

reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com. J.P. Morgan Equity Research Ratings Distribution, as of September 30, 2014 J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients*

Overweight (buy) 46% 57% 46% 76%

Neutral (hold) 42% 49% 48% 67%

Underweight (sell) 12% 34% 7% 51%

*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.

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Brandon Lee (65) 6882-7073 [email protected]

Asia Pacific Equity Research 09 December 2014

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Asia Pacific Equity Research 09 December 2014

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Copyright 2014 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P

14