GuocoLand - Maybank Kim Eng 2018-08-27: Unexciting Outlook

GuocoLand - Maybank Kim Eng Research 2018-08-27: Unexciting Outlook GUOCOLAND LIMITED SGX:F17

GuocoLand - Unexciting Outlook


Target Price cut 5% to SGD1.90; Maintain HOLD

  • While GuocoLand's FY18 sales were in line with expectation, core EBIT was a miss on weaker profitability. Nonetheless, higher valuation for its investment properties led to a 7% improvement in net profit.
  • We cut GuocoLand's FY19-20E EPS by 31/48% after pushing out the project completion timeline for its China projects. As such, our RNAV is lowered by 5% to SGD3.45. Our Target Price is cut to SGD1.90, based on an unchanged RNAV discount of 45%.
  • While GuocoLand's valuations are not expensive, we believe the recently implemented policy tightening will continue to weigh on sector sentiment. Furthermore, with majority of its unsold stock in the prime region, it could be more impacted by the measures targeting property investors.
  • Maintain HOLD.





Revenue in line, but core EBIT below

  • GuocoLand's FY18 revenue was in line at SGD1,160m.
~ SGinvestors.io ~ Where SG investors share
  • Driven by better-than-expected profit contribution from Changfeng Residence, a joint venture project in China, and a revaluation gain of SGD142m, net profit came in 16% ahead of our full-year forecast. However, core EBIT was below expectation at just 67% of our full-year estimate due to weaker-than-expected profitability in China and Singapore.
  • GuocoLand kept its full-year DPS unchanged at 7cts.


Higher valuation for commercial properties

  • The revaluation gain recorded was largely due to higher valuations for Guoco Tower and 20 Collyer Quay. Reflecting unchanged cap rate of 3.5% for its offices and a 10bps cap rate compression to 4.75% for its retail component, Guoco Tower is now valued 4% higher at SGD2,398m.
  • GuocoLand's owned spaces at 20 Collyer Quay and reversionary interests at the property is valued 6% higher at SGD484m.


Delay in China projects

  • Progress of its projects in China has been slower than expected. Notably, GuocoLand's mixed development site in Chongqing remains in the planning stage almost two years after its acquisition in Nov 2016. As such, we push out our project completion timeline and conservatively assume contributions from FY2022. With the decline in profitability, we cut our DPS for FY20-21E to 7cts (from 8cts).


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 Research | https://www.maybank-ke.com.sg/ 2018-08-27
SGX Stock Analyst Report HOLD Maintain HOLD 1.90 Down 2.000



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