SINGAPORE (Aug 29): CIMB Research is maintaining its “add” recommendation on property developer Guocoland with a higher price target of $2.77 from $2.59 previously.
The new target is based on a 25% discount to a higher net asset value (RNAV) projection of $3.73 after accounting for lower cap rates in Singapore.
CIMB remains positive on the stock even as it recently reported a set of 4Q17 results that missed the research house’s expectations on slower-than-projected overseas earnings contributions, with FY16/17 core net profit coming in at only 73% of CIMB’s full-year forecast
In a Monday report, analyst Lock Mun Yee says she continues to like Guocoland for its more stable income profile as compared to its peers, and recalls that its FY17 net profit was underpinned by a strong residential performance from its Singapore division – largely driven by progressive billings from the 82% sold Sims Urban Oasis as well as sales of units at Leedon Residences, which has been taken up by about 90%.
Looking ahead, the analyst believes that about 40% of the group’s FY18 profits will stem from recurrent sources of income from its various properties.
While no profits have been recognised from the recent launch of Martin Modern, she notes that 24% of the property has been sold thus far while three additional units of Wallich Residences were sold over the latest financial year to bring its take-up to about 10%.
Meanwhile, the group also saw its maiden contribution from Tanjong Pagar Centre (TPC) property, which Lock anticipates will realise its full uplifting effect of recurrent rental income from 2H18 onwards as its office tenants move in.
Sofitel Singapore City Centre is expected to fully open this year in September, adds Lock, which is also likely to bode well for Guocoland’s earnings as a recurring source of income into FY18.
Lastly, the group is expected to recognise profits from its overseas properties in the near-term, such as from its 50%-owned Changfeng Residences in Shanghai as well as the office and retail components of Damansara City in Malaysia, which have secured commitment rates of 100% and 80%, respectively.
CIMB has projected Guocoland to register about $1 million in total net revenue in FY18F, translating into a distribution per share (DPS) of 7 cents and a dividend yield of 3.06%.
As at Monday, the counter is trading 0.68 times book.
“[Guocoland’s] balance sheet has improved with a net debt-to-equity ratio of 0.91x and gross cash holdings of S$1.1bn as at end-FY17. It has redeployed $1.4 billion of capital over the past 9 months into a 27% strategic stake in Malaysian-listed Eco World International (EWI) as well as acquiring 4 land parcels totaling 48,961 sqm in Chongqing for RMB3.64 billion,” notes Lock.
This should drive longer-term earnings growth momentum. We believe EWI’s contributions should gather momentum from FY19 onwards, when its current projects are completed.”
As at 10.16am, shares in Guocoland are trading 1 cent lower at $2.31.
