GuocoLand (GUOL SP) - Maybank Kim Eng 2017-12-06: Accumulate On Weakness

GuocoLand (GUOL SP) - Maybank Kim Eng 2017-12-06: Accumulate On Weakness GUOCOLAND LIMITED F17.SI

GuocoLand (GUOL SP) - Accumulate On Weakness


Falling share price at odds with stronger data points 

  • GuocoLand’s share price fell 12% over the past month, underperforming the Developer Index (FSTREH), which fell by a smaller 4%. This is at odds with stronger data points that have emerged: 
    1. Stronger-than-expected pace of sales at Martin Modern, 
    2. Strong land bid for Jiak Kim site and 
    3. Wallich Residence hit SGD4,000 psf. 
  • We fine-tune sales and raise ASP assumptions for Martin Modern and Wallich Residence by SGD100-150 psf.
  • We lift TP to SGD2.95 (from SGD2.90), based on a 20% discount to its revised RNAV of SGD3.68. Stock is attractively priced at 43% RNAV discount. Maintain BUY. 
  • Risks from a sharp fall in property prices.



Stronger pace of sales at Martin Modern; Room for price hikes after strong Jiak Kim bid 

  • Caveat data showed that 201 units have been sold at Martin Modern. This is a faster pace of sales than our forecast of 150 units in FY18E and the latest disclosure of 186 based on URA’s monthly survey of developers in October. 
  • Tender for the Jiak Kim site, a comparable site to Martin Modern, closed on 5 Dec with the top bid submitted at SGD1,733 psf. This implies that Martin Modern would have a cost advantage of c.SGD500 psf based on its land rate of SGD1,239 psf. Hence, we see scope for GuocoLand to raise ASPs at the project in the coming year.


Wallich Residence hit SGD4,000 psf 

  • GuocoLand held a preview for Wallich Residence, the residential component of Tanjong Pagar Centre, in the week of 13 Nov. Since then, five caveats have been lodged with ASP reaching a high of SGD4,000 psf for a SGD3.8m, 89 sqm home on the 55th floor. ASPs for the remaining units range from SGD3,182 to SGD3,699 psf. 
  • We are surprised by the prices achieved and our SGD3,250 psf assumption looks too conservative.


Raising EPS and RNAV 

  • We fine-tune sales forecasts and raise ASP assumptions for Martin Modern and Wallich Residences by SGD100-150 psf. This lifts EBIT by about 4%.
  • Below the operating line, we bring forward associate earnings recognition for Changfeng Residences after the strong 1Q18 results.


Swing Factors


Upside

  • Strong rebound in high-end home prices in Singapore.
  • Pick-up in office prices.
  • Monetisation of commercial assets with outright sale or spin-off into funds.

Downside

  • Overpaying for land.
  • Poor execution of development project.
  • Sharp increase in interest rates, which could dampen demand for properties and drive down asset prices.







Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-12-06
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 2.95 Up 2.900



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