■ 3Q15 in line. Headline profit flattered by disposal gains.
■ We have tweaked forecasts for working capital adjustments and push back the timing of sales.
■ TP lowered 5% to SGD2.90 for RNAV adjustments. Yield of 2.5% while waiting a market rebound. Maintain BUY.
Headline boosted by disposal of industrial building
3Q15 net income of SGD20.3m was in line, with 9M15 at 63% of our full-year estimate. However, we note that its headline profit was flattered by the SGD6.9m gain from the disposal of an industrial building in the quarter. Core EBIT was flat excluding the gain. Rental income improved by 21% to SGD32.5m on higher contribution from The Metropolis in Singapore and newly acquired 39 Victoria Street in London. Net gearing inched up to 0.5x due to debt taken to finance the purchase of its investment properties.
Market assigned zero value to its Sentosa homes
At current stock price of SGD2, we believe the market has assigned almost no value to its Sentosa homes. Liquidating its portfolio of office assets at our estimated market value of SGD3b to pay off SGD1.3b of debt implies an equity value of SGD1.6b (SGD2.45/shr). Even if we mark down another SGD544m for other off-balance sheet liabilities, the implied value of SGD1.1b (SGD1.63/shr) remains not far from the stock price.
Maintain BUY; Deep value in stock
We tweak our forecasts for working capital adjustments and pushed back timing of sales, given the weak market conditions. Consequently, our RNAV falls slightly to SGD4.49 from SGD4.71. This led us to lower our TP to SGD2.90 (from SGD3.05), based on unchanged 35% RNAV discount. With the stock trading at a steep 56% RNAV discount and 0.5x P/BV, we see strong valuation support. Recurring income from its office assets can comfortably support its current DPS. Stockholders are paid a decent 2.5% yield while waiting for a market rebound. Maintain BUY. (Read Report)
Source : Maybank Kim Eng Research