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CIMB Securities 2015-08-27: Guocoland - Off to a flying start in FY16.

GUOCOLAND LIMITED F17.SI

Off to a flying start in FY16 

  • Guocoland reported an in-line FY15 core net profit at just 4% short of our forecast. The 26% dip in the net profit number was largely due to a lower revaluation surplus. 
  • For FY16, we expect the bottom line to surge three-fold, boosted by significant asset divestment gains from the sale of an office tower in Shanghai Guoson Centre and its stake in Beijing Dongzhimen, as well as the continued marketing of units at Leedon Residences. 
  • Plans to relaunch Clermont Residence are also in the works. 
  • We maintain our Add call, with a slightly lower target price of S$2.71, based on a 25% discount to RNAV. Catalysts could emerge from recycling its capital into new developments. 

Dragged down by lower revaluation gains 

  • Guocoland reported an FY15 net profit of S$226.4m, above our forecast, largely due to the inclusion of a S$74.2m revaluation surplus from investment properties in Malaysia and, to a lesser extent, Singapore. 
  • In terms of operating segments, Singapore was the main contributor at c.62% of the top-line, thanks to recognition of contributions from projects such as Goodwood Residences (est. 93% sold) and Leedon Residences (est. >40% sold). 
  • Revenue from China, making up c.35% of revenue, was boosted by proceeds from the sale of serviced apartments and an office block at Shanghai Guoson Centre, while Malaysia’s contributions dipped as they are only recognised on completion. 

Asset divestment boost in FY16 

  • We believe FY16’s earnings will be boosted by significant gains from asset divestments. Guocoland is expected to book in a S$58m profit from the sale of a 33,297sqm GFA office block in Shanghai Guoson Centre, as well as S$480m net gain from the sale of its 90% stake in the Beijing Dongzhimen development. Its Malaysian subsidiary had also recently announced plans to sell one office tower in Damansara City in KL for RM189m. 
  • In the meantime, apart from marketing Leedon Residences, the planned relaunch of Clermont Residences at Tanjong Pagar Centre is also in the works. 
  • Gearing is likely to improve markedly from the current 1.57x post the sale of Beijing Dongzhimen. This will enable the group to recycle capital into new developments that could lift RNAV further. 

Maintain Add 

  • We tweak our RNAV estimates lower by 2% to adjust for the weaker ringgit but maintain our Add rating. The sale of the Beijing Dongzhimen development has enabled the group to improve its balance sheet strength as well as actualise its RNAV. 
  • Potential catalysts could emerge when it recycles its capital into new developments.


LOCK Mun Yee | TAN Xuan CFA | http://research.itradecimb.com/ CIMB Securities 2015-08-27
ADD Maintain ADD 2.71 Down 2.78


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