A multi-bagger play on value unlocking
- Strong residential property sales momentum to continue, driving revenue CAGR of 19% from FY21-23F
- Beneficiary of office upcycle on flight to quality trend; further upside to earnings from revaluation of Guoco Midtown
- Valuations undemanding at P/NAV of 0.40x, c.1.5 SD below the 5-year mean of 0.52x, with decent 3.9% yield
- Potential securitisation of commercial portfolio or conversion into a stapled security presents share price upside ranging 50%-100%
A play into future-ready living. GuocoLand’s development projects located in Singapore, Malaysia and China are built to accommodate the rising expectations of comfort and convenience. We expect positive sales momentum to continue, catering to both local and foreign demand, driving revenue CAGR of 19% from FY21-23F for this segment that contributed 84% to FY21 revenue.
Beneficiary of office upcycle. We believe that the flight to quality trend will lead the office market recovery in Singapore. GuocoLand 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. This is on top of positive rental reversionary trends expected for Guoco Tower in a tight supply market. There is potential upside to our earnings from the revaluation of Guoco Midtown that we have yet to factor in.
Potential restructuring to crystallise value? Trading at a P/NAV multiple of just 0.40x and 3.9% yield, valuations are attractive. 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%.
Valuation:
Initiate with a BUY and TP of S$2.30, pegged to a conservative 60% discount to our revalued net asset value (RNAV) of S$5.70 as the stock is illiquid compared to its larger developer peers.
Key Risks to Our View:
Economic slowdown, weak sentiment, faster than expected increase in interest rates, and regulatory risks.