Exciting times ahead on both property development and investment fronts
FY22 net profit 151% above estimate, driven by fair value gains from Guoco Tower and Guoco Midtown. FY22 revenue was in line with our estimate at S$965.5m, which was mainly contributed by the higher progressive recognition of sales from the group’s residential projects in Singapore. Excluding the fair value gains in cost of sales from the transfer of Guoco Changfeng City’s South Tower from development properties to investment properties, the gross profit margin remained stable at c.30%. Other income more than doubled to $354.6m due to higher fair value gains from the group’s investment properties, Guoco Tower and Guoco Midtown. The disposal of its Vietnam subsidiaries was completed, resulting in a net profit from discontinued operations of $14.3m. Profit attributable to equity holders of the company for the year more than doubled to $392.7m, from S$169.1m in FY21. A dividend of 6 Scts per share was declared, in line with our estimate; the payout ratio was at c.46% excluding the fair value gains.
Property development segment to remain a key driver. Revenue increased 12% y-o-y to S$803.4m in FY22 from S$716.8m in FY21 on the back of higher progressive recognition of sales. As at 30 June 2022, 79% of Meyer Mansion was sold, 75% of Midtown Modern was sold, 38% of Midtown Bay was sold,and 76% of The Avenir was sold. With sales for Midtown Bay lagging the rest of the projects, management shared that the strategy going forward would be to lease out the unsold properties once it received the TOP, given that the units would command higher rental rates as part of a mixed-use development with access to the network hub in Guoco Midtown.
Pivoting to a deeper focus on the property investment business. GuocoLand has been steadily growing its property investment business, with 60% of its assets in investment properties as at 30 June 2022. Flagship property Guoco Tower’s offices and retail units remained at full occupancy with positive double-digit rental reversions, as it is now in the cycle of reversions after five years. For Guoco Midtown, the pre-commitment take-up rate is at 60%, including several deals in advanced stages of negotiation. Tenant mix will be across a highly diversified group of industries, i.e., no anchor tenant, similar to Guoco Tower, which will help reduce any tenant, sector, or industry concentration risk. 20 Collyer Quay enjoyed a firm occupancy rate of 92%. Management guided that Grade A office rental rates continued to look robust on low new supply and sustained demand. For Guoco Changfeng City, its commitment rate stood at c.85%, while the retail mall was fully leased out.
Positive catalysts to look out for. Lentor Modern, a mixed-use development, is expected to launch in 3Q22 with previews starting on 2 September. 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. This would form a foundation for its next residential development that is located nearby at Lentor Hills Road Site (Parcel A) and launching in c.6 months. Management guided that they will continue to look to replenish its landbank and build its development pipeline.
Attractive valuation. GuocoLand’s NAV per share rose to S$3.86 as at 30 June 2022 from S$3.60 as at 30 June 2021. The stock is currently trading at 0.44x P/NAV, which is 0.5SD below its five-year average and lower than its peer average of 0.58x, against decent yields of 3.6% p.a. for FY23F/24F. We believe that the current valuations are attractive, given the company’s expertise in mixed-use developments and strong project pre-sales.
Maintain BUY and unchanged TP of S$2.30, implying a 37% upside.
