GuocoLand (GUOL SP) - UOB Kay Hian 2017-08-25: Reaping The Rewards

GUOCOLAND LIMITED F17.SI

GuocoLand (GUOL SP) - Reaping The Rewards

GuocoLand is a key beneficiary of property sector turnaround and rotational interest.
Overhang related to litigation on Beijing Dongzhimen (DZM) project ownership and high gearing have been removed, paving the way for a continued rerating of the stock.
Expect strong recurring earnings going forward upon stabilisation of Tanjong Pagar Centre.

GuocoLand is trading at a deep 37% discount to its RNAV of S$3.63/share. Resume coverage with BUY and target price of S$2.80.

GuocoLand’s share price surged 9.1% wow ahead of its upcoming full-year results, outperforming both its peers (-0.4% wow) and the broader market (0.1% wow).
While this pick-up brings GuocoLand’s ytd share price performance (+26.7% ytd) in line with its peers (+27.3%), it still lags significantly behind that of City Developments’ (+38.8%).

Earnings are expected to receive a strong boost from the development properties with the pick-up in residential sales momentum in Singapore and China.
Urban Oasis and Leedon Residences will be the key contributors in Singapore. This will be boosted by potential revaluation gains in the Tanjong Pagar Centre. As a result, we expect bumper earnings growth, excluding the divestment of Beijing Dongzhimen project that resulted in a one-off gain last year.

GuocoLand is well positioned to ride the property upturn as it derives about 70% of its value from Singapore. It is also a beneficiary of expected privatisation of Global Logistics Properties, which has resulted in strong interest from fund managers in developer names who are looking to replace the gap in their portfolios.

The two major overhangs on the stock have been the long-drawn legal dispute surrounding its ownership of its Beijing Dongzhimen (DZM) project and its relative high gearing compared with its peers, both of which have been addressed. This paves the way for a continued re-rating of the stock.
Beijing Dongzhimen (DZM) project was sold to China Cinda Asset Management for Rmb10.5b last financial year, generating a net gain of Rmb1.58b (S$480m). Its gearing has dropped from a peak of 1.8x in FY12 to 0.7x in FY16.

Strong recurring earnings going forward, with the asset stabilisation of Tanjong Pagar Centre that integrates 890,000 sf of premium column-free Grade A office space at Guoco Tower, a 100,000sf dynamic lifestyle and F&B component, 181 luxurious homes at Wallich Residence, the 222-room 5-star Sofitel Singapore City Centre.
We project recurring earnings to account for 20-30% of GuocoLand’s overall earnings forward.

Maintain BUY with raised target price of S$2.80 (from S$2.48), pegged at a 23.5% discount to our raised RNAV of S$3.63/share (from S$3.30) mainly factoring in the contributions from the Chongqing and Martin Modern projects.
The discount is in line with the long-term discount for GuocoLand that trading at a deep 37% discount to its RNAV.

Vikrant Pandey UOB Kay Hian | http://research.uobkayhian.com/ 2017-08-25

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.80 Up 2.550