GUOCOLAND LIMITED
F17.SI
Realising value from DZM
- Guocoland has sold its 90% stake in the Beijing DZM development for Rmb10.5bn. This will remove a major overhanging uncertainty of the outcome of this project on its share price. Apart from realising value from this development, the sale would enable the group to de-lever its balance sheet and recycle capital going forward.
- We tweak our RNAV by 3.6% to S$3.70, given the lower-than-projected selling price. We expect investors to focus on the key positive of RNAV actualisation and anticipate a share price re-rating to narrow the gap to asset backing.
- We reiterate our Add rating with a revised target price of S$2.78.
What Happened
- Guocoland has entered into an agreement with China Cinda Asset Management Co Ltd to sell its 90% stake in the Beijing Dongzhimen mixed development through the divestment of the equity, contractual and loan interests relating to this project. The Rmb10.5bn price tag was arrived at on a willing-buyer and willing-seller basis, comprising Rmb4.56bn of project rights and Rmb5.94bn of project liabilities, and will be satisfied in cash. The net book value of the Dongzhimen project is Rmb8.46bn. Guocoland is expected to realise a S$480m net gain from the disposal.
What We Think
- We believe the removal of the overhanging uncertainty of the outcome of this project, realising value from the development, deleveraging its balance sheet and ability to recycle capital going forward are major positives from this transaction.
- Although the Rmb10.5bn selling price is lower than our base case assumption of Rmb12.9bn, we believe investors would remain focused on the positive outcomes.
- Post transaction, we reckon Guocoland’s net debt-to-equity ratio could dip to a healthy 0.83x from its present 1.5x. Apart from potentially utilising the cash proceeds from the sale to pare down existing debt, it could also look for reinvestment opportunities around the region.
What You Should Do
- We have lowered our RNAV estimate by 3.6% to S$3.70 and consequently adjusted our target price to S$2.78, premised on a 25% discount to RNAV.
- We reiterate our Add call. Apart from lowering the proportion of RNAV exposed to China properties, actualising a key component to its asset value would narrow the gap between the share price and revalued asset backing.
LOCK Mun Yee | TAN Xuan CFA | http://research.itradecimb.com/ CIMB Securities 2015-08-21
2.78
Down
2.88
