Guocoland - CIMB Research 2016-10-25: Expect a better 2H

Guocoland - CIMB Research 2016-10-25: Expect a better 2H GUOCOLAND LIMITED F17.SI

Guocoland - Expect a better 2H

  • 1QFY17 earnings slightly below estimates at 13% of our FY17 forecast.
  • Singapore residential projects continue to see robust take-up.
  • GUOL’s earnings likely to be 2H loaded, with higher Malaysia contributions, new Singapore residential launches and rental income from TPC.
  • Maintain Add with an unchanged target price of S$2.59.

1QFY17 slightly below estimates 

  • GUOL reported a 54% yoy decline in 1QFY6/17 revenue to S$202.8m (US$146m), while gross profit fell 70% yoy to S$42.7m (US$31m), due to a high base in 1QFY16 which included the sale of a completed office block in Shanghai Guoson Centre. 
  • Net profit fell a steeper 95% yoy to S$25.6m (US$18.4m) with the absence of a one-off gain from the divestment of the Beijing Dongzhimen development last year. 
  • 1QFY17 net profit made up 13% of our full-year forecast.

Underpinned by Singapore residential contributions 

  • We estimate that contributions in 1QFY17 came largely from progressive residential billings from Singapore. 
  • Ongoing projects such as Sims Urban Oasis saw additional sales of 64 units from Jul-Sep 16, bringing the total take-up rate to 56% while Leedon Residence saw another 15 units changing hands from Jul-Sep 16, bringing sell-through rate to 67%.

Expect earnings to be more 2H loaded 

  • We expect its earnings to be more 2H loaded with rental income from TPC filtering in. 
  • We anticipate profits from the sale of residential units at the completed Damansara City in Malaysia to be recognised on completion. In addition to sales at Sims Urban Oasis, The Wallich Residence is planned for launch at end-2016/early-2017. 
  • The group also purchased a new residential site at Martin’s Place for S$595m in 1QFY17. When launched, this development is expected to extend the visibility of its residential earnings.

TPC to be a large recurrent income source 

  • The retail and office portion of Tanjong Pagar Centre (TPC) was recently completed and expected to open in phases from Nov 16. The pre-commitment rate, inclusive of signed and under advanced negotiation, for the 890,000 sqf office tower was high at 80%. The residential and hotel components are scheduled to be finished in early 2017. 
  • We expect GUOL to generate an attributable S$80m share of retail and office rental revenue when the property is fully leased.

Maintain an Add 

  • As at 1QFY17, the group remains relatively low geared at 0.9x, with a gross cash hoard of S$1.1bn. This puts it in a strong position to reinvest into new projects to drive income and RNAV growth. 
  • We maintain our Add call with an unchanged RNAV-based target price of S$2.59. 
  • Potential re-rating catalysts could emerge when it redeploys capital into new developments. 
  • Key downside risks are slower-than-expected residential sales or leasing activity.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-10-25
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.59 Same 2.590