SingHaiyi Group - RHB Invest 2016-05-31: Can't Rest On Past Laurels

SINGHAIYI GROUP LTD 5H0.SI

SingHaiyi Group - Can’t Rest On Past Laurels

Despite the previous negative publicity shrouding Pasir Ris One over narrow corridors and surface defects, sales for 93% of the total units have been recognised in FY16, higher than our 90% expectation.
A final dividend of 0.2 SG cent was announced, amounting to 0.4 cent for FY16 including the special dividend in 1QFY16. The payout ratio is close to 40% of net attributable profit.

With landbank depleting and persistent headwinds confronting the domestic front, we are eager to see more acquisitions in the US and other regions that may heighten its earnings resilience and diversification beyond local shores.

SingHaiyi has at times been “misrepresented” as an S-chip company, despite not having a single property in China. We hold the view that its beaten-down share price over the past few months due to China’s stock selloff and economic concerns is overdone.
With SingHaiyi starting to pay dividends in FY16 (Mar), a financially-strong sponsor and limited downside risk at current levels, we see value in the stock.
Reiterate BUY with unchanged RNAV-derived TP of SGD0.14.

With progressive recognition of Pasir Ris One and CityLife@Tampines this year, SingHaiyi thus has reduced exposure to the domestic market. Its Singapore property development segment now contributes 25.6% of FY17 RNAV (from 35.9% of FY15 RNAV). City Suites (~10% sold) and The Vales executive condominium (EC) (over 55% sold) are the remaining projects.
Amid the domestic slowdown, we await more accretive acquisitions from overseas to drive future earnings. Any tweaking of Singapore property cooling measures near end 2016 would also offer a further share price catalyst.

The Vales EC at Anchorvale Crescent is expected to be completed in 1H17. The average selling price is around +SGD780 psf, and we expect revenue contributions of SGD351m in FY18 and SGD39m in FY19.
With the strengthening of SingHaiyi’s recurring income base, a formal dividend policy would also greatly help instil investor confidence in the company, in our view.

FY16 PATMI registered a strong performance mainly due to:
1. Contribution from the Pasir Ris One design, build and sell scheme (DBSS) project (total 447 units), which was awarded a temporary occupation permit (TOP);
2. Completion of CityLife@Tampines EC (TOP in Feb 2016), a fully sold-out 514-unit EC project, in which SingHaiyi holds a 24.5% stake.
For Pasir Ris One, another ~1% sales of the total units of the project were recognised in 4QFY16. All in, SingHaiyi has recognised sales for 93% of the total units (as of 31 Mar 2016) of this development.
FY16 GPM declined by 43.9ppts to 15.4% because of the Pasir Ris One project, which had lower profit margins.
Overall, we judge this set of results to be within expectations, as FY16 core PATMI cumulates to 98% of our full-year forecast.

The company made another allowance of SGD3.9m for diminution in value for City Suites (a residential property in Balestier, Singapore) in 4QFY16. Recall that SingHaiyi had previously made a provision of SGD10.5m on the same project (known as “The CosmoLoft” then) in FY14.
All in, City Suites has taken impairments of SGD14.4m.
According to the Urban Redevelopment Authority (URA), City Suites has 51 out of 56 units which are unsold. We expect SingHaiyi to progressively sell more units as the residential market in Singapore picks up.

With the landbank in Singapore depleting fast (Pasir Ris One DBSS and CityLife@Tampines EC recognised), SingHaiyi would increasingly have to rely on its recurring income base and overseas assets to sustain future profits.
FY17 profits, especially, may be challenging, as there are no major development projects to recognise, aside from the continuing sales of Vietnam Town in the US (San Jose, California) and City Suites Singapore (Balestier – TOP expected in 1H17).
The rest of the projects such as The Vales EC and 5 Thomson Mellon Circle (US) will likely contribute only from FY18 onwards.
We look forward to more accretive acquisitions from both domestic and overseas markets to drive future earnings. In that vein, SingHaiyi does have a 12-month right of first refusal (ROFR) by 5 Apr 2017 to acquire a 44.3% stake of OKH Global Ltd from its sponsor (Haiyi Holdings Pte Ltd) for SGD50m. Given the downtrend in the industrial segment, SingHaiyi may be looking at catching the bottom of the cycle if it does exercise the option, but we would have preferred a much longer-term option (2-3 years) from the sponsor for SingHaiyi to better gauge market conditions.
Maintain BUY with an unchanged RNAV-derived TP of SGD0.14 (16% upside).

Ong Kian Lin RHB Invest | http://www.rhbinvest.com.sg/ 2016-05-31

RHB Invest SGX Stock Analyst Report BUY MAINTAIN BUY 0.14 Same 0.14