GuocoLand (GUOL SP) - Maybank Kim Eng 2018-02-02: Compelling Valuation

GuocoLand (GUOL SP) - Maybank Kim Eng 2018-02-02: Compelling Valuation GUOCOLAND LIMITED F17.SI

GuocoLand (GUOL SP) - Compelling Valuation


Good proxy for strengthening SG market; BUY 

  • GuocoLand's 1HFY18 net profit was in line with ours and consensus estimates. We fine-tuned our model to incorporate the recent issuance of perpetual securities and trim our FY19-20E core EPS by 2% in each year for higher financing cost. 
  • Our RNAV is lowered marginally to SGD3.67 for lower MBKE Target Price for Eco World International. Maintain BUY and SGD2.95 Target Price, based on an unchanged 20% RNAV discount. 
  • GuocoLand offers investors good exposure to the strengthening residential and office markets in Singapore. Trading at 0.68x P/BV and a 39% RNAV discount, the stock’s valuation is compelling when compared to its larger developer peers (1.1x P/BV, 10% RNAV discount) and office REITs (1.0x P/BV).



Results inline; Stronger recognition from Singapore 

  • GuocoLand's 2Q18 revenue growth of 60% y-o-y was underpinned by stronger sales for residential developments in Singapore. 
  • Contributions from associates fell to SGD9m due to high-base effects from land sales in 2Q17 and earnings recognition from the completion of Changfeng Residences in 1Q18. 
  • 2Q18 net gearing inched up 0.1ppt sequentially to 0.84x after deposits for the Beach Road site was made. 
  • Overall, 1H18 was in line at 65% of FY18E.


Sales update 

  • 94% of Sims Urban Oasis has been sold and should support earnings recognition this year. The high-end market appears to be strengthening with GuocoLand achieving strong ASPs for the five units sold at the recent preview of Wallich Residence. With 47% of the project now sold, we also see scope for higher ASPs at Martin Modern and expect price support from the high price paid for the Jiak Kim site nearby. 
  • With 400 units of saleable stock from these projects, it is well-positioned to capture the recent pick up in market sentiment. In the medium term, it could restock its residential inventory with part of the Beach Road site.


Diversifies funding sources with perpetual securities 

  • GuocoLand diversified its funding sources with the issuance of SGD350m in perpetual securities (PS) on 23 Jan. The perpetual securities was issued at a fixed coupon rate of 4.60% with the first reset date in Jan 2025 at 7Y SOR +3.609%. It may redeem all outstanding PS at par in Jan 2023. 
  • This issuance will lower its FY18E net gearing by 15bps to 0.85x, but incurs higher interest cost of SGD4m a year, net of savings from retired debt 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/ 2018-02-02
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 2.950 Same 2.950



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