GuocoLand (GUOL SP) - Maybank Kim Eng 2018-03-19: Raising Prime Residential Exposure

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GUOCOLAND LIMITED F17.SI

GuocoLand (GUOL SP) - Raising Prime Residential Exposure

Maintain BUY with higher Target Price of SGD3.00 

• We lift FY18-20E EPS by 1-15% for newly-acquired Pacific Mansion and higher ASPs for Martin Modern. These are partially offset by higher financing costs from another SGD50m of perpetual securities raised since our last update. 
• GuocoLand's latest acquisition has increased its prime residential exposure and should allow the group to ride the improving market sentiment. 
• We raise our Target Price to SGD3.00 from SGD2.95 after incorporating the latest changes, still at a 20% discount to RNAV. Maintain BUY. 
• Risks from sharp property price falls in Singapore and China.

Acquires Pacific Mansion 

• GuocoLand has taken a 40% stake in the redevelopment of Pacific Mansion with other Hong Leong-linked entities. The freehold site is located in River Valley, near GuocoLand’s Martin Modern project. 
• According to CBRE, the sale price of SGD980m translates into a land rate of SGD1,806 psf, including bonus balcony areas. This is a slight premium to the SGD1,733 psf paid for a Jiak Kim site in a recent government land tender. Assuming an eventual ASP of SGD3,200 psf, we estimate a development surplus of 6 SGD cts. 
• We believe our assumptions are not aggressive, given a strengthening market and SGD3,200 psf achieved at the recently launched New Futura.

Raising ASPs for Martin Modern 

• With brisk sales and higher achieved ASPs, we expect GuocoLand to raise prices for the unsold stock at Martin Modern. URA’s latest data showed that 231 units have already been sold at this 450-unit project. 
• We lift ASPs for unsold stock from SGD2,550-2,650 to SGD2,700-2,750 psf for the next two years.

Fund-raising not needed if sales stay brisk 

• Its 40% stake in Pacific Mansion puts its share of land cost at SGD392m. Assuming a 70% gearing, we believe its initial equity contribution of SGD118m can be comfortably funded. If our home-sales forecasts for its Singapore and China projects are met, we see no need for equity fundraising.
• We do not rule out the latter if sales stall.

Swing Factors

Upside

• Strong rebound in high-end home prices in Singapore.
• Pick-up in office prices.
• Monetisation of commercial assets with outright sale or spin-off into funds.

Downside

• Overpaying for land.
• Poor execution of development project.
• Sharp increase in interest rates, which could dampen demand for properties and drive down asset prices.

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 3 Up 2.950