Guocoland - CIMB Research 2017-01-23: FY17 earnings to be back end loaded

GUOCOLAND LIMITED F17.SI

Guocoland - FY17 earnings to be back end loaded

We deem 1HFY17 net profit in line, at 41% of our FY17 forecast.
This is because we expect stronger 2H with higher rental income from TPC and contributions from Changfeng Residences in China.
Land banking in Singapore and China provides more earnings visibility.
We maintain our Add call with an unchanged target price of S$2.59 based on 25% discount to RNAV.

Guocoland Limited (GUOL) reported 2QFY17 net profit of S$57.1m, +46% yoy, on a 3% dip in revenue to S$232m.
The improvement in bottomline was largely due to higher associate contributions from Malaysia, from the disposal of a land parcel in Sepang, Malaysia. This helped to offset a weaker GP margin due to different sales mix vs. the previous quarter following the completion of Guoco Tower in Oct 16.

Singapore continued to account for 90% of revenue, made up of progressive residential billings and maiden revenue from Guoco Tower.
The take-up of its residential projects continues to be encouraging, with the Sims Urban Oasis 60% sold while Leedon Residence is now 75% taken up.
Guoco Tower was completed in Oct 16 and has started generating revenue. The office component is c.85% leased to date, inclusive of committed and under negotiation leases.

We expect earnings to be more 2H loaded, with profits from Changfeng Residences (CR) as well as growing rental contribution from Tanjong Pagar Centre (TPC).
Scheduled to be completed over the next 1-2 quarters, CR has been well received with more than half of the development sold at an average ASP of Rmb50,000-60,000psm.
GUOL has also bought a 48,961sqm mixed site in Chongqing for Rmb3.64m. This will likely underpin China's contribution when completed in the next 5-7 years.

We anticipate recurrent income to pick up with the completion of TPC. The remaining hotel and residential components are scheduled to be completed over the next 1-2 quarters. In addition to higher office/retail rental income, we expect the residential project The Wallich Residences to be relaunched. Furthermore, the Martin Place residential project site, acquired in 1QFY17, could also be rolled out towards 2HCY17.
This provides the group with strong income visibility.

We tweak our FY17-19F EPS to adjust for a one-off gain from Malaysia, higher ASPs for CR and the moving of Martin Place site's launch date to FY18. As at end 2QFY17, GUOL has a gross cash hoard of S$1.2bn.
While gearing has risen to c.1x, we think this ratio could dip when TPC is completed and marked to market.
We keep our Add call with an unchanged target price of S$2.59.
Potential re-rating catalyst could come with higher recurrent income and the redeployment of capital.
Risk to our call is slow leasing market.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-01-23

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.590 Same 2.590