Guocoland - CIMB Research 2015-10-20: Beijing DZM sale boost in 1Q

Guocoland - CIMB Research 2015-10-20: Beijing DZM sale boost in 1Q GUOCOLAND LIMITED F17.SI 

Guocoland - Beijing DZM sale boost in 1Q 

  • 1QFY16 earnings were boosted by the sale of the Beijing DZM project. 
  • Additional sales at Singapore residential projects and the sale of an office tower in Shanghai continued to underpin core performance. 
  • Stronger balance sheet post-Beijing DZM sale, with net gearing of 0.64x and gross cash balance of c.$2bn. 
  • Expect asset recycling in Malaysia, more leasing activity at Tanjong Pagar Centre. 
  • Maintain Add, with RNAV-based target price of S$2.73. 

Surge in net profit from sale of Beijing DZM 

  • Guocoland saw a surge in net profit from S$27m in 1QFY15 to S$550.5m in 1QFY16, thanks to a S$480m net gain from the sale of its 90% stake in the Beijing Dongzhimen (DZM) project. At the topline, revenue almost doubled to S$439.8m in 1Q due to better sales at Leedon Residence in Singapore and the divestment of a 33,297sq m GFA office tower at Shanghai Guoson Centre. The latter generated a $58m profit from the sale. 

Take-up continues to improve for Singapore residential projects 

  • Within the Singapore residential operations, the 381-unit Leedon Residence saw an additional 31 units taken up in 1QFY16, bringing the sales rate for the entire project to c.53%. The 1,024-unit Sims Urban Oasis also saw another 25 units change hands, bringing the take-up rate to c.30%. 

Stronger balance sheet 

  • Following the divestment of Beijing DZM, Guocoland’s balance sheet strengthened significantly, with net gearing declining to 0.64x as at end-1QFY16. It has a gross cash balance of S$2bn, putting the company in a strong position to redeploy its capital into RNAV-enhancing new developments. 

Asset recycling in Malaysia, TPC development on track 

  • Over the next few quarters, Guocoland’s bottomline is likely to be underpinned by its subsidiary Guocoland Malaysia’s sale of an office tower at Damansara City in Kuala Lumpur for RM189m. 
  • Apart from ongoing projects, the progressive development of mixed Tanjong Pagar Centre (TPC) is also on track. It recently signed a multi-year contract with Virgin Active for a 31,000sq ft state-of-the-art fitness space. 

Maintain Add 

  • We tweak our FY16 and FY17 estimates marginally and adjust our RNAV estimate to reflect the higher share price of Guocoland Malaysia and maintain our Add rating. With its strong balance sheet, re-rating catalysts could emerge when it recycles capital into new projects.

LOCK Mun Yee CIMB Securities | 2015-10-15
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.73 Same 2.71