DBS Group Research analysts Tabitha Foo and Derek Tan are keeping “buy” on GuocoLand as the property group’s net profit for the FY2022 ended June stood 151% above the analysts’ estimates.
The analysts’ target price on the counter also remains unchanged at $2.30.
In their report dated Sept 2, the analysts see GuocoLand as a play into future-ready living in Singapore, Malaysia and China. The way they see it, the group’s development projects located in these three countries are built to accommodate the rising expectations of comfort and convenience.
In Singapore, the analysts expect the group’s strong property sales momentum to continue with its highly anticipated project launch in FY2023 set to rejuvenate the Lentor district, similar to what it achieved in the Bugis district with Guoco Midtown.
As such, they are projecting GuocoLand to report a compound annual growth rate (CAGR) of 17% for its revenue from the FY2021 to FY2024 for this segment.
GuocoLand’s Lentor Modern, a mixed-use development, is expected to launch in 3Q2022. The development’s preview began on Sept 2.
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“Given that this will be the first private condominium launch in the Lentor estate in more than two decades, we believe this project will be highly anticipated and well received,” say Foo and Tan. “This would form a foundation for its next residential development that is located nearby at Lentor Hills Road Site (Parcel A) and launching in [around] six months.”
“Management guided that they will continue to look to replenish its landbank and build its development pipeline,” they add.
Beneficiary of the office upcycle
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GuocoLand is also seen to be a beneficiary of the current flight-to-quality trend that will lead to the office market recovery in Singapore.
To the analysts, the group is “well positioned” to capitalise on this trend, given that Guoco Midtown is the only source of new supply of CBD Grade A office space in Singapore in 2022- 2023. Guoco Midtown will begin its maiden contribution in FY2023.
“This is on top of positive rental reversionary trends expected for Guoco Tower in a tight supply market,” Foo and Tan write.
Is a potential restructuring in the works?
At its current share price against its net asset value (NAV) per share, GuocoLand is currently trading at a P/NAV of 0.44x, which the analysts deem attractive. The valuation is 0.5 standard deviations (s.d.) below its five-year average and lower than its peer average of 0.58x, against “decent yields” of 3.6% per annum (p.a.) for FY2023/FY2024, the analysts note.
GuocoLand’s NAV per share rose to $3.86 as at June 30 from $3.60 the year before.
“We believe that the current valuations are attractive, given the company’s expertise in mixed-use developments and strong project pre-sales,” say Foo and Tan.
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Further to their report, the analysts are mulling the possibility of the group going through a potential restructuring to crystalise its value.
“With a growing portfolio of commercial assets, the potential securitisation of GuocoLand’s income-producing portfolio or conversion into a ‘stapled security’ could be a significant share price catalyst, with potential upside ranging from 50% to 100%,” they write.
As at 11.17am, shares in GuocoLand are trading flat at $1.67, or at an FY2023 P/B of 0.4x and a dividend yield of 3.6%.
