Guocoland - CIMB Research 2017-10-19: Boosted By China Residential

Guocoland - CIMB Research 2017-10-19: Boosted By China Residential GUOCOLAND LIMITED F17.SI

Guocoland - Boosted By China Residential

  • GuocoLand (GUOL)'s 1QFY6/18 net profit was above our expectations, making up 94% of our FY6/18F forecast.
  • Singapore projects continued to do well with higher take-up rates.
  • Changfeng Residences boosted China earnings, but we expect growth to taper off in 2HFY6/18F.
  • We anticipate higher rental income from 2HFY6/18F.
  • We maintain our Add rating with a slightly higher RNAV-based TP of S$2.82.

1QFY18 results above on lumpy residential earnings 

  • GUOL reported a 1QFY18 net profit of S$165.6m, significantly above the previous comparable period’s S$25.6m, whilst revenue rose 79% yoy to S$362m. 
  • The improved performance was due to higher sales and recognition from Singapore residential projects as well as a jump in associate contributions. This offset the increase in interest expense due to expensing of capitalised interest cost from Tanjong Pagar Centre (TPC).

Higher take-up and recognition underpin residential profits 

  • Martin Modern was launched in early-1QFY18 and has so far garnered an estimated take-up rate of 31% at an average selling price of S$2,200-2,300psf. 
  • Meanwhile, the Sims Urban Oasis is 87% taken up (vs. 78.5% a quarter ago). Progressive recognition of profits and higher sell-through rates would continue to underpin residential contributions.

Lumpy China contributions to taper off for rest of FY18 

  • Meanwhile, maiden profits from its 50%-owned Changfeng Residences in Shanghai has boosted associate contributions significantly. More than 90% of its units have been sold amid rising prices. 
  • Looking forward, we anticipate associate profits to taper off in the coming quarters, after this lumpy recognition.

Expect rental income boost in 2HFY18 

  • For the rest of FY18, we expect the uplifting effect of rental contributions from Tanjong Pagar Centre (TPC) to be felt towards 2HFY18, as physical occupancy of the office and retail components improve.
  • The Sofitel Singapore City Centre soft-opened in Sep; we project occupancy to gradually rise. We think TPC could generate c.$100m-120m of rental and hotel revenues, when fully operational. 
  • GUOL successfully tendered for the Beach Rd commercial land parcel. We expect rental income from this property to boost recurrent income when completed.

Maintain Add rating 

  • We adjust our earnings to bring forward contributions from the Changfeng Residences project. Also, we include the accretive impact from the recent Beach Rd land parcel win.
  • Hence, we raise our RNAV to S$3.76. Our RNAV-based TP is raised to S$2.82, based on a 25% discount to RNAV. 
  • We like GUOL for its increasingly more stable income profile, which we estimate could make up 40-50% of its FY19 operating profit. 
  • Downside risks are slower-than-expected recovery in the Singapore residential and office markets.

LOCK Mun Yee CIMB Research | 2017-10-19
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.82 Up 2.770