Guocoland - CIMB Research 2016-04-22: Absence of divestment gains drags 3Q results

GUOCOLAND LIMITED F17.SI

Guocoland - Absence of divestment gains drags 3Q results

3QFY6/16 net profit declined due to the absence of asset sales. This resulted in 9MFY16 net profit making up c90% of our FY16 forecast.
Its Singapore projects are seeing sales pick up progressively.
TPC is on track to completion in Jul 16 and will be a strong recurrent income source when fully leased.

Guocoland’s revenue dropped by 49% yoy to S$165.9m and net profit fell by 77% to S$11.3m in 3QFY16, which was expected, given the high base in 3QFY15.
3QFY15 earnings included a gain from the en bloc sale of serviced apartments in Shanghai Guoson Centre. For 9MFY16, the group reported a fivefold jump in net profit to S$600.8m, following the sale of its stake in Beijing Dongzhimen.
Gross margin remained relatively stable yoy at c.30%.

3QFY16 net profit was underpinned by residential sales in Singapore, with Leedon Residences achieving c.60% take-up rate and Sims Urban Oasis enjoying c.40% sales rate to date.
The group is likely to continue to drive sales of its ongoing developments in Singapore.
In addition, Guocoland Malaysia reported a relatively stable set of 3QFY6/16 results, supported by the disposal of land in KL and profits from the residential project in Damansara City.

Tanjong Pagar Centre (TPC) is on track to receive its temporary occupation permit (TOP) in Jul 16.
Take-up of the office space at Guoco Tower has improved, with AccorHotels relocating its Asia-Pacific headquarters there.
Other tenants that have committed leases are K Line, Bunge, ManpowerGroup, DNB Asia, Hong Leong Bank, Open Link and Regus.
AccorHotels will also operate the Sofitel Singapore City Centre at TPC. TPC will form a strong recurring income base for the group when fully committed.

Following the sale of Beijing Dongzhimen, Guocoland’s balance sheet strengthened, with net gearing of 0.66x and gross cash hoard of S$1.66bn at end-3QFY16. This puts the group in a strong position to evaluate new investment opportunities.

We tweak our FY16-18 EPS estimates marginally by 1-2% to adjust for the latest results.
Maintain our Add rating, with a slightly higher target price of S$2.74.
We believe that catalysts could emerge from the group redeploying its capital into RNAV-accretive investments.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-04-22

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.74 Up 2.73