Guocoland - CIMB Research 2015-12-09: Underpinned by divestment gains

Guocoland - CIMB Research 2015-12-09: Underpinned by divestment gains GUOCOLAND LIMITED F17.SI 

Guocoland - Underpinned by divestment gains 

  • Better take-up at ongoing residential projects. 
  • Completion of Tanjong Pagar Centre to boost recurrent income base. 
  • More asset recycling at Guocoland Malaysia. 
  • Strong balance sheet and lower gearing of 0.64x post divestment of Beijing DZM. 
  • Retain Add with RNAV-backed target price of S$2.73. 

■ Better take up at Singapore residential projects 

  • The group has two ongoing residential developments – Leedon Residence and Sims Urban Oasis. The former is c.55% taken up at present while the 1,024-unit Sims Urban Oasis has seen its take-up rate improving to 35% as at Oct 15. Progressive sales of these projects will continue to underpin profit contributions. 

■ Growing recurrent income base by FY17 

  • Completion of the 1.7msf GFA Tanjong Pagar Centre (estimated GDV of S$3bn) will likely boost the group’s recurrent income base. 
  • The 80%-owned development comprises 890,000sf of office space, 100,000sf of retail area, 181 residential units, 222 hotel rooms and 150,000sf of urban area. The office component is scheduled to be completed in 2Q16. 
  • Leasing activities are ongoing and it recently signed a 31,000sf rental contract with Virgin Active for a state-of-the-art fitness space 

■ Asset recycling in Malaysia 

  • Guocoland’s 68%-owned subsidiary, Guocoland Malaysia, has been on a divestment spree recently. Following the sale of an office tower at Damansara City in KL for RM189m, the latter’s 40% associate has announced that it is selling a 696ha land parcel for RM475m. 
  • In addition, it has also announced the sale of certain commercial and car park properties at Block C and D Menara Pandan for RM33m. Upon completion of these transactions, Guocoland Malaysia is expected to recognise a gain of RM270m. 

■ Balance sheet strengthened 

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

■ Maintain Add rating 

  • We reiterate our Add call for Guocoland with a RNAV-backed target price of S$2.73. 
  • With a strong balance sheet, re-rating catalysts could emerge when it recycles its capital into new projects.

LOCK Mun Yee CIMB Securities | 2015-12-09
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.73 Same 2.73