Turning more to development. As the outlook for the Singapore office sector remains muted, and the hotel sector also appears to have peaked, SingLand has turned to residential development by acquiring four sites in 2012. We see this as a proactive move by the management to maintain returns for shareholders. With its free float close to 10%, we now see a higher probability of a privatisation. Upgrading to BUY.

On a shopping spree. SingLand was an active participant in the 2012 Government Land Sales (GLS) programme, acquiring four sites for residential development (Bright Hill site is a 50-50 JV with UOL). The sites have a combined attributable GFA of 788,361 sq ft and an estimated GDV of SGD1.3b. At a blended pre-tax margin of ~18%, margins are decent.

Ongoing projects almost sold-out. After sluggish starts, both The Trizon and Archipelago (50% stake) are now substantially sold at 92% and 99% respectively. We expect the progressive recognition of income from Archipelago to mitigate possible mildness in SingLand’s office rental income, with more development profits from FY14 onwards the four newly acquired sites start to contribute.

Getting closer to privatisation? UIC holds a 79.8% stake in SingLand, while Silchester holds another 8.2%. Silchester is a long- term institutional holder of the stock (more than 10 years), leaving SingLand’s free float close to the 10%-mark, below which it will lose its listing status. With SingLand still trading at a 40% discount to our RNAV, UIC may finally pull the trigger and launch a privatisation bid funded by the low current borrowing costs. Assuming a bid of SGD8.80/sh corresponding to SingLand’s 10-yr average PBR of 0.75x, it will cost UIC SGD733m to buy the shares it does not already own.

Upgrade to BUY. While SingLand remains predominantly a commercial landlord, we like that management is actively navigating the headwinds. We raise our target price to SGD8.20, mainly as we ascribe a narrower 30% discount to RNAV (from 40%). Upgrade to BUY.

Source: Maybank Kim Eng Research - 21 Dec 2012