Guocoland - CIMB Research 2017-08-28: Look Beyond These Results

GUOCOLAND LIMITED F17.SI

Guocoland - Look Beyond These Results

Guocoland (GUOL) FY16/17 core net profit below our expectation, at 73% of our full-year forecast, on slower-than-projected overseas earnings contributions.
Singapore underpinned by billings from ongoing projects; Martin Modern launch to be felt from FY18.
Recurrent income sources to make up c.40% of FY18F operating profit.

GUOL reported 4QFY17 net profit of S$244.8m, up from S$39.8m a year ago, due to a 90% jump in revenue and S$254.5m of revaluation surplus.
FY17 net profit of S$357.2m fell 41% yoy, due to gains from the disposal of Beijing DZM in FY16, partly offset by higher revaluation surplus in FY17. Stripping out revaluation and asset divestment impact, FY17 core net profit of c.S$145.2m was up 15% yoy. This is below our expectations.
The group proposed a final DPS of 7 Scts, translating to a yield of 3.1% Singapore continues to deliver FY17 net profit was underpinned by a strong residential performance from the Guocoland Singapore division with progressive billings from Sims Urban Oasis (82% sold) and sales of units at Leedon Residences (90% taken up).
No profits have been recognised from the recent launch of Martin Modern (24% sold) as yet. Over FY17, an additional 3 units were sold at Wallich Residences, bringing the take-up to 10%.
Meanwhile, there was maiden rental income from Tanjong Pagar Centre (TPC), with a committed occupancy of >90%.

We anticipate the full uplifting effect of the recurrent rental income from Tanjong Pagar Centre (TPC) to be felt from 2HFY18 onwards, as its office tenants move in. The Sofitel Singapore City Centre is expected to fully open in Sep 17.
In all, we reckon that TPC could generate c.S$100m- 150m of rental and hotel revenues annually. We estimate c.40% of GUOL’s operating profit could come from stable, recurring sources in FY18.

In FY17, the strong domestic performance more than offset the weaker overseas performance, with an absence of completed property sales in China and Malaysia. While its 50%-owned Changfeng Residences in Shanghai has garnered a 90% booking rate, profits have yet to be recognised.
Meanwhile, the office and retail components of Damansara City in Malaysia have secured 100% and 80% commitment rates, respectively, and should boost rental income going forward, in our view.

Balance sheet has improved with a net debt-to-equity ratio of 0.91x and gross cash holdings of S$1.1bn as at end-FY17.
It has redeployed S$1.4bn of capital over the past 9 months into a 27% strategic stake in Malaysian-listed Eco World International (EWI) as well as acquiring 4 land parcels totaling 48,961 sqm in Chongqing for Rmb3.64bn. This should drive longer-term earnings growth momentum.
We believe EWI’s contributions should gather momentum from FY19 onwards, when its current projects are completed.

We adjust our FY18-19F earnings for the slower-than-earlier projected China and Malaysia contributions.
However, we revise up our RNAV projection to S$3.73 to take in the lower cap rates for its Singapore investment properties. Hence, our TP is raised to S$2.77, based on a 25% discount to RNAV.
We continue to like GUOL for its more stable income profile. Maintain Add rating.
Downside risks include slower-than-expected recovery in the Singapore residential and office market.

LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-08-28

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.77 Up 2.590