WHEELOCK PROPERTIES (S) LTD - Still Attractively Valued Here
- 16.2% rally YTD.
- Still see value at current levels.
- Reiterate BUY with FV at S$2.27.
Confluence of factors drove year-to-date rally
- Wheelock Properties (S) Ltd’s (“Wheelock”) shares rose an impressive 16.2% YTD, alongside a 12.3% rally in the sector (FSTREH) over the same period.
- We believe the aggressive rally in developers was kindled from long depressed valuations across the sector and rising anticipation of potential curb reversals ahead.
- In addition, with 2016 primary home sales rising 7.2% YoY to 8.0k units, a soft landing scenario for the domestic residential sector now appears increasingly realistic.
- Finally, developers with significant majority shareholders, particularly those trading at sizeable discounts to book, continue to appeal to investors seeking likely privatization candidates. (Note that Wheelock’s parent, Wheelock and Co Ltd in Hong Kong, holds 76.2% of the company.)
- With the confluence of these reasons and Wheelock’s relatively limited trading liquidity, Wheelock’s rally has outpaced that of the sector. That said, even at current levels, the company’s shares are still trading at an undemanding 0.68x price-to-book which we deem to be attractive given the strength of its balance sheet and portfolio of quality investment assets.
Expect healthy set of full year results ahead
- We expect the company to report a healthy set of 2016 results in the coming weeks mainly due to relatively firm sales at Ardmore Three and The Panorama and contributions from Phase 1 of the Fuyang project in China which was ready for handover in 4Q16.
- 9M16 PATMI rose 81.2% YoY to S$74.8m while revenues over the period similarly increased 107.1% YoY to S$545.4m from higher home sales.
- Key investment assets, Wheelock Place and Scotts Square Retail, continue to enjoy close to full occupancy rates.
- Sitting on a net cash position, we see the group being in a solid financial position to ride out the current down-cycle.
- Maintain BUY with an unchanged S$2.27 fair value estimate.