Guocoland - CIMB Research 2016-09-01: Full year benefited from Beijing DZM sale

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GUOCOLAND LIMITED F17.SI

Guocoland - Full year benefited from Beijing DZM sale

• FY6/16 bottomline boosted by sale of DZM project; proposes total DPS of 9 Scts.
• Slower Singapore residential profits with progressive recognition of ongoing projects.
• Overseas income could grow in 2QFY16 with residential sales at Damansara City and Changfeng Residences.
• Rental income a new growth driver, growing pre-leasing rates at TPC.
• Maintain Add, with lower RNAV-backed target price of S$2.59.

FY6/16 boosted by DZM, largely in line with expectations 

• Guocoland’s 4Q16 net profit was down 63% yoy to S$39.8m, but full-year net profit surged 168%, boosted by the sale of Beijing Dongzhimen. 
• However, revenue declined 16% in 4Q and 9% in FY16 with the completion of sale of residential units at Goodwood Residences, partly offset by progressive contributions from Sims Urban Oasis and Leedon Residence. 
• The group proposed a total DPS of 9 Scts (5 Scts final, 4 Scts special), translating to a yield of 4.7%.

Slower Singapore residential; completed projects almost fully sold 

• Looking ahead, we expect Singapore residential contributions to slow given that its Goodwood Residence units are almost fully sold. The group will continue to market units from Leedon Residence (64% sold) and Sims Urban Oasis (50% sold). It plans to officially re-launch Wallich Residence at Tanjong Pagar Centre (TPC) towards late-2016 or early-2017.

Overseas contributions continue to be felt in 2HCY16 

• Post Beijing Dongzhimen, China contributions will be from rental income from Shanghai Guoson Centre and residential profits from its 50%-owned Changfeng Residences in Shanghai. We anticipate maiden contributions from the latter to materialise from endCY16. 
• In Malaysia, profits from the sale of residential units at Damansara City boosted 4Q16 results. The residential component of this project is completed and further sales will filter down immediately to bottomline.

TPC will provide another income source 

• Rental income will be boosted with the completion of Tanjong Pagar Centre in 3QCY16.
• We understand pre-leasing of the retail space is progressing well, with more than 60% of the retail space committed while the office component is seeing higher leasing interest.
• We estimate that when both components are fully leased out, Guocoland can generate an attributable S$80m share of annual rental revenue. This will provide another source of recurring income for the group.

Strong balance sheet to fund investments 

• As at end-FY16, the group was relatively low geared at 0.73x and has a gross cash hoard of S$1.43bn. This puts it in a strong position to reinvest in new projects to drive income and RNAV growth. 
• Earnings-wise, we raise our FY17F EPS by 30% and trim our FY18F EPS by 6% as we bring forward income recognition of Changfeng Residences and tweak our RNAV by -6% to adjust for the lower RM. 
• We maintain our Add call, with lower target price of S$2.59. 
• Potential re-rating catalysts could emerge when its redeploy capital into new developments. Key downside risks are slower than expect residential sales or leasing activity.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-09-01

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.59 Down 2.740