Bukit Sembawang (BS SP) - Maybank Kim Eng 2018-03-19: Reloading On Condo Stock

Bukit Sembawang (BS SP) - Maybank Kim Eng 2018-03-19: Reloading On Condo Stock BUKIT SEMBAWANG ESTATES LTD B61.SI

Bukit Sembawang (BS SP) - Reloading On Condo Stock


Maintain BUY with high Target Price of SGD8.55 

  • Bukit Sembawang has acquired its first condominium site in a decade with Katong Park Towers. We expect management to launch the newly-acquired project just before the completion of a railway station nearby and expect it to contribute to earnings from FY21E onwards. 
  • Nonetheless, we lift FY19- 20E EPS by 5% for higher ASPs at 8 Saint Thomas to reflect escalating land prices in the vicinity and strong prices seen at new launches in the prime area. 
  • We raise our RNAV-based Target Price to SGD8.55, based on an unchanged 20% discount to a revised RNAV of SGD10.68. Maintain BUY.



Acquires Katong Park Towers 

  • Bukit Sembawang has successfully tendered for Katong Park Towers. The redevelopment site is located in the East Coast and is within 200m of the future Katong Park MRT Station due to be completed in 2023. 
  • According to Cushman & Wakefield, the sale price of SGD345m translates into a land rate of SGD1,280 psf after taking into account SGD60m to be paid to upgrade its land lease to 99 years. This compares with SGD1,515 psf for Amber Park and SGD1,427 psf for Nanak Mansions. The slight discount reflects its leasehold status compared to freehold status for the other two sites. 
  • Assuming an eventual ASP of SGD2,200 psf, we estimate a development surplus of 22 SGD cts for this project.


Raising ASPs for 8 Saint Thomas 

  • Escalating land prices and strong prices seen at new launches in the prime area led us to raise ASP for 8 Saint Thomas to SGD2,800 psf (from SGD2,650 psf). The prime freehold project located just off River Valley Road should command a premium over Martin Modern given its freehold status. 
  • Furthermore, the recently announced deal for Pacific Mansion also paints a bullish picture for future prices in the area. Our assumption is not aggressive considering a strengthening market and SGD3,200 psf achieved at the recently launched New Futura.


Putting its over-capitalised balance sheet to work 

  • The latest deal will put BS’s overcapitalised balance sheet to work. With a net cash position of SGD227m as of Dec 2017, the company can comfortably fund this deal with its current resources. 
  • Even after building in the entire land cost to be incurred, its net gearing will only inch up to a moderate 0.04x in FY19E.



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/ 2018-03-19
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 8.550 Up 8.250



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