Raises SG Residential Exposure; Maintain HOLD

GuocoLand raised its exposure to the Singapore residential market with the acquisition of Casa Meyfort. With contributions from this project offset by lower market value of GuocoLand Malaysia, we lower our RNAV estimates marginally to SGD3.64 and retain our SGD2.00 TP, based on an unchanged RNAV discount of 45%.

While the stock’s valuation is not expensive, we expect the recently implemented policy tightening to weigh on sentiment for the sector. Maintain HOLD.

Prefer UOL for sector exposure.

Acquires Casa Meyfort: Now or Never?

Unfazed by the recent policy tightening, GuocoLand announced the acquisition of Casa Meyfort, a freehold redevelopment site in the East Coast. The acquisition price of SGD319.9m is 6% below the vendor’s asking price of SGD340m. Including the estimated development charge of SGD57.8m, the unit land rate for this property is SGD1,580 psf.

As the option to purchase was exercised within three weeks of the implementation of the revised measures, it is likely not subjected to the revised ABSD rates. This acquisition will lift its FY19E net gearing by 7bps to 0.76x.

Slight Premium to Comparable Sites

The land rate is 3-4% higher than prices paid for other freehold properties in the vicinity. CityDev acquired Amber Park for SGD1,515 psf, while Sustained Land paid SGD1,539 psf for Parkway Mansion. It is also 23% higher than the land rate of SGD1,280 psf for leasehold property Katong Park Towers by Bukit Sembawang.

Strong Locational Attributes

The redevelopment of Casa Meyfort could potentially yield 300 condominium units. We believe the property has strong locational attributes with unblocked views of the East Coast Park to the south and landed housing estate to the north. It is also within 600m of the Katong Park MRT Station that is due to be completed in 2023.

Assuming an eventual ASP of SGD2,350 psf, we estimate a development surplus of 2.8 cts per share from this deal. This assumption is reasonable as it is broadly in line with prices achieved at recently launched Amber 45 and at a slight premium to four year old The Meyerise.

Swing Factors 

Upside 

• Strong rebound in high-end home prices in Singapore. 
• Pick-up in office prices. 
• Monetisation of commercial assets with outright sale or spin-off into funds. 

Downside 

• Overpaying for land. 
• Poor execution of development project. 
• Sharp increase in interest rates, which could dampen demand for properties and drive down asset prices. 

Source: Maybank Kim Eng Research - 13 Jul 2018