Source of opportunity
GuocoLand offers attractive leverage to China and Singapore. We
welcome expansion of its development pipeline, particularly its entry in
2007 into two mega projects, Dongzhimen in Beijing and Leedon Heights
in Singapore. While the stock has outperformed YTD, the group’s growth
is accelerating and we see the recent correction following debt/equity
issuance as a buying opportunity. We think the market has not fully priced
in 4 acquisitions (including Dongzhimen) made in the past 5 months,
which we estimate have expanded RNAV by over 70%, partly due to
growth of asset values in China and Singapore. Adding to Conviction List.
Catalyst
We see near-term share price performance driven by launch of Singapore
residential projects, Casa Rosita in Dec 2007 & Palm Beach Garden in
1Q2008, and China projects Changfeng (Shanghai) and Ascot Park
(Nanjing). We expect more Singapore site acquisitions to further drive the
share price. Longer term, we expect free float increase post CB conversion
and execution of a capital efficient business model to act as catalysts.
Valuation
Our 12-m TP of S$6.40 is set at parity with our June-08 RNAV estimate and
reflects dilution from the recent rights and convertible bond issues.
GuocoLand trades at a 30% discount to our forward RNAV estimate
compared with an average 6% premium to a mix of December 07 & 08
RNAVs for other Singapore developers under our coverage. We think its
RNAV discount should dissipate given about 90% of our RNAV comes from
the China and Singapore markets, on which we are positive.
Key risks
Downside risks: failure to execute on large-scale projects and deterioration
in the China / Singapore property markets. Upside risk: shares trading at a
premium to RNAV as investors better value the group’s transformation.
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