GuocoLand - CIMB Research 2018-02-01: Strong Residential Performance

GUOCOLAND LIMITED F17.SI

Guocoland - Strong Residential Performance

GuocoLand's 1HFY6/18 core EPS makes up 55% of our FY18 forecast, in line with expectations.
Strong residential take up for ongoing projects.
Recurrent income from Tanjong Pagar Centre progressively expanding.
New Beach Rd site to increase its exposure to office upcycle.
Maintain ADD with a Target Price of S$2.88.

GuocoLand (GUOL) reported 2QFY6/18 revenue of S$370.6m, up 60% y-o-y, but net profit came in 25% lower y-o-y at S$43m.
The improvement in topline was due to better performance in Singapore residential, albeit partially offset by a decline in associate contributions due to the high base of the previous quarter from a one-off gain from land sale.
For the half year, the group achieved a 152% surge in net profit to S$208.5m, making up 55% of our FY18 forecast.

In Singapore, GuocoLand’s two ongoing residential projects, Sims Urban Oasis and Martin Modern, continue to see progressive take-up – they are 92% and 46% sold, respectively, as at Dec 2017.
In addition, Martin Modern achieved ASP of S$2,255psf. Meanwhile Sims Urban Oasis received temporary occupation permit (TOP) in Oct 2017. Progressive recognition of profits from these projects should continue to underpin profits, in our view.

Meanwhile, its office space at Tanjong Pagar Centre (TPC) is about 98% leased and rental contributions should be progressively increasing. The Sofitel Singapore City Centre was soft-opened in Sep 2017. The hotel currently enjoys an average 50% occupancy rate for the 150 rooms in operation. We reckon Tanjong Pagar Centre could generate c.S$100m-120m in rental and hotel revenue when fully operational.

In Sep 2017, GuocoLand and its JV partner Guoco Group successfully won the Beach Rd commercial land parcel tender at a price of S$1.62bn. The 2ha land parcel can house up to 88,313 sqm of GFA, of which a minimum 70% is slated for office use and a maximum 3.4% for retail use.
Development details are still being finalised. While we expect net debt to equity ratio to rise from the 0.91x at end-2Q with the remaining land payment, we believe this project will likely enable GuocoLand to leverage on the office rental upcycle.

We leave our FY18-20F earnings unchanged but tweak our RNAV post results. Our new Target Price of S$2.88 is still based on a 25% discount to RNAV. We like GuocoLand for its increasingly more stable recurrent income profile.
Potential re-rating catalysts are increasingly higher selling prices achieved for its ongoing residential projects in Singapore.
Downside risk is a slower-than-expected recovery in the Singapore office and residential markets.

LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-02-01

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.88 Up 2.820