SINGAPORE (Mar 20): Maybank and CIMB are maintaining their "buy” calls on GuocoLand following news of the developer’s joint en bloc acquisition of Pacific Mansion for a total of $980 million.
See: GuocoLand and Hong Leong win bid to acquire Pacific Mansion for $980 mil, highest in the current en bloc cycle
GuocoLand and Intrepid investments will hold 40% of the development each, with Hong Leong Realty owning the remaining 20%.
While Maybank has lifted its target price on GuocoLand to $3 from $2.95 previously after factoring 1-15% higher FY18-20 earnings for the latest acquisition as well as higher average selling prices (ASPs) for Martin Modern, CIMB is leaving the price target of GuocoLand unchanged at $2.88.
In a Monday report, Maybank analyst Derrick Heng notes that GuocoLand’s latest acquisition increases its exposure to prime residential properties, which should in turn allow the group to ride improving market sentiment in future.
After incorporating the latest changes, the new target price of $3 still represents a 20% discount to RNAV estimates, he adds.
Assuming a 70% gearing, Heng believes the group’s initial equity contribution of $118 million can be comfortably funded without the need for equity fund-raising, provided Maybank’s home sales forecasts for GuocoLand’s Singapore and China projects are met.
“Assuming an eventual ASP of $3,200 psf [post the redevelopment of Pacific Mansion], we estimate a development surplus of 6 cents. We believe our assumptions are not aggressive, given a strengthening market and $3,200 psf achieved at the recently launched New Futura,” says Heng.
The analyst is also anticipating a rise in prices for unsold stock at Martin Modern, and therefore raises projections for unsold stock ASPs over the next two years to $2,700-2750 psf from the previous $2,550-2,650 range.
Separately, CIMB analyst Lock Mun Yee says the latest acquisition would enable GuocoLand to replenish its dwindling Singapore residential sale pipeline while extending residential development income visibility.
The analyst continues to like the stock for its attractive valuations and high recurrent income base. Based on her estimates, Pacific Mansions translates to a $1,806 psf of gross floor area (GFA) and the potential breakeven cost of $2,500 psf.
However, she thinks the project is likely to only be ready for launch in 2019.
“Assuming an average selling price of $2,700 psf, this project could add another 4 cents to GuocoLand’s current RNAV of $3.84… Potential re-rating catalyst could come from rising ASPs for its ongoing projects, while downside risk could be a slower-than-expected recovery in the Singapore office and residential markets.” notes Lock.
As at 2.57pm, shares in GuocoLand are trading 2 cents higher at $2.13 or 0.6 times Maybank's FY18 forecast book value.
