Bukit Sembawang (BS SP) - Maybank Kim Eng 2018-02-22: Model Update

Bukit Sembawang (BS SP) - Maybank Kim Eng 2018-02-22: Model Update BUKIT SEMBAWANG ESTATES LTD B61.SI

Bukit Sembawang (BS SP) - Model Update


Maintain BUY and SGD8.25 TP 

  • We update our model to incorporate the latest data points. We believe the recent increase in Buyer’s Stamp Duty will not derail the housing recovery and continue to see Bukit Sembawang as a concentrated proxy for this.
  • Maintain BUY and SGD8.25 Target Price, based on 20% discount to RNAV of SGD10.35. This under-the-radar mid-cap developer is attractively priced against the large caps, which are a consensus trade.



Converting Paterson Collection to serviced apts 

  • Bukit Sembawang has been granted written approval to convert 85-unit Paterson Collection into 112 units of serviced apartments, while retaining three existing residential units. As such, it has reclassified the asset from development properties into property, plant and equipment. 
  • It paid a one-off SGD31.8m Additional Buyer’s Stamp Duty in 3Q18 and is no longer subjected to extension premiums under the Qualifying Certificate rules.
  • We assume that Bukit Sembawang will need to incur another SGD25m of capex to fit-out the property for leasing. On a stabilised basis, we estimate recurring EBITDA of SGD6.2m and a yield on cost of 2.3-2.6%.


Fine-tuning forecasts 

  • We remove Paterson Collection from our sales forecasts and incorporate leasing income at the property. We also lift FY18E to reflect the sales of three terrace houses at Nim Collection and 43 homes at Watercove. 
  • We believe Bukit Sembawang can capitalize on improving sentiments in the luxury market with the launch of 8 St Thomas in the coming year.


Investment thesis remains intact 

  • We believe the recently announced increase in Buyer’s Stamp Duty will not derail the housing recovery in Singapore. For a SGD2.7m terrace house, the price hike of SGD17k is just 0.6% of the property value. 
  • Our investment thesis for Bukit Sembawang remains intact:
    1. concentrated proxy for a cyclical upturn in Singapore’s residential market;
    2. earnings to rebound in FY19/20E, reversing six years of earnings decline;
    3. vast plots of increasingly valuable legacy land in an environment of elevated land prices;
    4. pristine balance sheet with SGD227m net cash;
    5. attractive valuation at 41% discount to RNAV. 
  • As the most liquid mid-cap Singapore-based property developer, we believe Bukit Sembawang is not an un-investible stock.


Swing Factors


Upside

  • Rebound in home sales.
  • Faster-than-expected monetisation of legacy land.
  • Return of surplus capital to shareholders.

Downside

  • Overpaying for land.
  • Poor execution of development projects.
  • Interest-rate spike could dampen demand for properties and drive down asset prices.
  • Policy tightening.







Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-02-22
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 8.250 Same 8.250



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