SINGAPORE (June 1): SAC Advisors has initiated coverage on SLB Development, the property developer which was spun off from construction company Lian Beng Group, with a “buy” call and a target price of 28 cents.
The target price represents an upside of more than 33% from SLB’s current trading price of 21 cents as at 10.54am.
“We think that SLB deserves a premium to the sector average valuation given its large landbank, first mover advantage from acquiring assets early as well as its exposure to China,” says analyst Eing Kar Mei in a report on Friday.
“In fact, its local partners are mostly trading at a premium to the sector average,” she adds.
According to Eing, SLB is better positioned than its peers to ride on the improving property market as it had acquired land and buildings relatively early in the property cycle.
“We believe Singapore’s residential property market has bottomed given the low inventory levels and strong demand, which has in recent quarters led to improving property prices,” says Eing. “With assets purchased at cheaper prices, we expect lower development cost and higher margins for SLB, especially when home prices are improving.”
In addition, Eing notes that SLB has a low-risk business model, as its projects are mostly developed with partners to manage investment risk. This also allows SLB and its partners to tap on each other’s expertise in order to develop better projects.
“In the shorter term, the group has large undeveloped landbank in Singapore to support the company’s earnings for the next 2-3 years. Having said that, the company is actively looking for landbank to keep earnings flowing,” the analyst says.
For instance, Eing notes that SLB in April teamed up with Oxley Holdings to acquire the Pei-Fu Industrial Building near Upper Paya Lebar Road for $76.25 million.
See: Oxley-SLB JV acquires Pei-Fu Industrial Building for $76.3 mil
Meanwhile, SLB is also poised to benefit from its effective equity interest of close to 10% in the Sino-Singapore Health City project in Gaobeidian, in China’s Hebei province.
“Due to Gaobeidian’s proximity in Beijing, other main cities and the newly proposed special economic zone, Xiong’an New Area, we see strong demand for the properties in Gaobeidian,” Eing says.
SLB made its trading debut on Apr 20 this year. Its shares opened 3 cents above its IPO price of 23 cents, before settling to 25 cents at market close with some 47.1 million shares changing hands.
Shares in SLB are currently trading at an estimated price-to-earnings ratio at 11.7 times for FY19.
