SINGAPORE (Feb 5): Maybank Kim Eng is maintaining its "buy" on GuocoLand given its compelling valuation when compared to larger developer peers and office REITs.
GuocoLand, a member of the Hong Leong Group, offers investors good exposure to the strengthening residential and office markets in Singapore, says analyst Derrick Heng in a Friday report.
The group also owns an effective 68% stake in GuocoLand Malaysia and 27% of EcoWorld International, both of which are listed on Bursa Malaysia.
To recap, GuocoLand's 1H18 net profit was also in line with Maybank's estimates at 65% of FY18. 2Q18 revenue growth of 60% y-o-y was underpinned by stronger sales for residential developments in Singapore.
Contributions from associates fell to $9 million due to high-base effects from land sales in 2Q17 and earnings recognition from the completion of Changfeng Residences in 1Q18. 2Q18 net gearing inched up 0.1ppt sequentially to 0.84 times after deposits for the Beach Road site was made.
Meanwhile, 94% of Sims Urban Oasis has been sold and should support earnings recognition this year. Maybank says the high-end market appears to be strengthening with GuocoLand achieving strong ASPs for the five units sold at the recent preview of Wallich Residence.
"With 47% of the project now sold, we also see scope for higher ASPs at Martin Modern and expect price support from the high price paid for the Jiak Kim site nearby," says Heng, "With 400 units of saleable stock from these projects, it is well-positioned to capture the recent pick up in market sentiment. In the medium term, it could restock its residential inventory with part of the Beach Road site."
Last month, GuocoLand diversified its funding sources with the issuance of $350 million in pferpetual securities. The perps were issued at a fixed coupon rate of 4.60% with the first reset date in Jan 2025.
This issuance will lower its FY18 net gearing by 15bps to 0.85 times, but incurs higher interest cost of $4 million a year, net of savings from retired debt.
"We fine-tuned our model to incorporate the recent issuance of perps and trim our FY19-20 core EPS by 2% in each year for higher financing cost. Our RNAV is lowered marginally to $3.67 for lower target price for Eco World International," says Heng.
"Maintain 'buy' and $2.95 target price, based on an unchanged 20% RNAV discount... trading at 0.68 times P/BV and a 39% RNAV discount, the stock’s valuation is compelling when compared to its larger developer peers and office REITs.
As at 12.08pm, shares in GuocoLand are trading 3 cents lower at $2.19.
