SLB Development - SAC Capital 2022-08-01: Buoyant Residential Sales Lifted Profit And Cash Flow


SLB Development - Buoyant Residential Sales Lifted Profit And Cash Flow

  • SLB Development (SGX:1J0)'s FY22 (1 Jun 2021 to 31 May 2022) net earnings rose 97% to S$26.3m, underpinned by higher profit contribution from 51%-owned INSPACE (~S$5.6m) and three residential projects held at associate level which were substantially sold (pretax profit ~S$19.3m, +182% y-o-y). Thye Hong Building generated higher rental income of ~S$5m. Fund management fee was a marginal S$0.8m.
  • SLB Development has been adding land bank with two en bloc acquisitions:
    1. a 10% stake in Peace Mansion (average land cost S$1,385 psf ppr) to be redeveloped into a mixed commercial and residential project; and
    2. a 15% stake in Euro-Asia Apartments (at S$1,313 psf ppr) for residential development.
  • We expect these projects to contribute from FY2024 (1 Jun 2023 to 31 May 2024), and command margin of 10- 15%, supported by low inventory industry-wide.
  • SLB Development is also building recurring income through
    1. rental income from
      • Thye Hong Building, commercial building at North Canal Road (acquired for S$14.4m),
      • office building in Melbourne (acquired for A$35.5m);
    2. JV with Weave Living for co-living assets; and
    3. fund management income.
  • Residential prices are likely to be supported by elevated land cost, but demand uncertainty is rising. In spite of the mid-Dec 2021 cooling measures, Singapore private home prices continued to climb, up 4.2% year-to-date (FY21: +10.6%). Units sold fell 26.6% to 12,154 (FY21: +60.5% to 33,557) while new units fell 34.6% to 4,222 (FY21: +30.5% to 13,027).
  • 2H22 government land sale, comprising 3,505 units on confirmed list and 3,805 on reserve list, is also expected to add to new supply from 2024. Rising mortgage rates, however, could dampen demand and buyers’ affordability.
  • SLB Development's net debt of S$106.9m and net gearing at 0.52x are expected to further improve with ~S$140m to be received from associates from the residential sale. We expect an earnings lull in FY23, as higher rental income might not be sufficient to offset taper development gains.

Peggy Mak SAC Capital Research | https://www.saccapital.com.sg/ 2022-08-01
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000