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

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. 
  • Strong balance sheet, with net gearing of 0.66x at end-3QFY16. 
  • Maintain Add, with a slightly higher RNAV-based target price of S$2.74. 

■ Lack of en bloc divestments drag on 3QFY16 earnings 

  • 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%. 

■ Singapore residential projects progressively selling 

  • 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. 

■ TPC is scheduled for completion in Jul 16 

  • 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. 

■ Strong balance sheet to fund new investments 

  • 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. 

■ Maintain Add 

  • 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 | 2016-04-22
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.74 Up 2.73