Singapore Land

AmFraser Securities on 20 Feb 2012

SINGAPORE Land Ltd reported a 51 per cent plunge in net profit to $331 million for FY2011. Results were below expectaions, meeting 92 per cent of consensus estimates and 85 per cent of our FY2011 forecast.

It was mainly attributable to significantly lower revaluation gain of $126 million in FY2011.

Topline growth of 17 per cent was aided by higher sales recognition of The Trizon in Singapore and increased revenue from Pan Pacific (Pan Pac) hotel. However, negative rental reversions had set in dragging rental income 4 per cent lower.

SingLand sold three units of The Trizon at an average selling price (ASP) of $1,641 per square foot (psf) in Q4 FY2011. Take-up rate stands at 83 per cent. Comparing q-o-q, take-up rate inched only 1 per cent but ASP had reversed with a 3 per cent price gain.

Over the past two months, SingLand had also sold 23 per cent of a residential project - Archipelago along Bedok Reservoir Road at an ASP of $1,117 psf. It is a 50:50 joint venture with UOL Ltd. We are maintaining our ASP assumption of $1,100 psf.

Earnings from hotel operations were 10 per cent higher owing to both higher room and occupancy rates and F&B takings.

Although Mandarin Oriental and Marina Mandarin posted similar gains, associates' results were impacted by lower residential contribution due to completion of One Amber.

According to statistics released by Urban Redevelopment Authority (URA), median office rental rates rose by 8 per cent to $9.51 psf per month (pm) in FY2011. It marked the seventh consecutive quarter of increase.

We reiterate our stance on SingLand's relatively older buildings being sidestepped in favour of newer buildings. SingLand has guided that its renewal lease rates are lower than expired ones and the situation is likely to persist in our opinion. Other older building in Raffles Place such as Equity Plaza is also finding it tough to fill up spaces.

Office solutions provider, Corporate Locations, expects rental rates to soften after peaking in Q3 FY2011. 9.8 million sq ft of new office is scheduled to come on stream in the next four years.

We have revised our RNAV estimate downwards by 4 per cent to $9.59 per share factoring in a 10 per cent fall in rental rates for its office properties. Pegging our fair value at parity to our RNAV estimate, we maintain our 'buy' rating. Its parent, United Industrial Corp Ltd, had continuously accumulated SingLand's shares, albeit at a slower pace in Q4 FY2011, to its current 78.44 per cent holdings.
BUY

Singapore Land

Kim Eng on 20 Feb 2012

Core earnings in line. SingLand reported a 51% fall in its PATMI to $330.7m in FY11. Excluding revaluation gains, PATMI would have shown a 5% YoY increase instead to $214.8m, in line with our expectations. More notably, its investment properties marked a 2.5% downward revaluation from 1H11, making SingLand the first commercial landlord to report a decline in capital values. Maintain Sell as the office sector outlook remains challenging.

Office segment still the bugbear. SingLand’s gross rental income fell by 4% YoY on the back of negative rental reversion. In addition, it suffered a revaluation loss of $114.4m in 2H11 as the value of its investment property portfolio fell by 2.5%. We expect office demand to remain tepid as asking rents slide in 2012, continuing the trend of negative rental reversion. SingLand’s hotel earnings may also take a temporary hit in FY12 as the Pan Pacific Hotel is scheduled to be closed for three months for upgrading works.
Residential sales also challenging. Residential sales accounted for 20% of SingLand’s gross profits in FY11, double that of FY10, as profits from the 83%-sold The Trizon are progressively recognised. However, sales at The Archipelago at Bedok Reservoir, a 50:50 joint venture with UOL, are unimpressive. To date, only 23% of the total 577 units have been sold, possibly because supply in the Bedok Reservoir area has become saturated in recent years.

Jousting for Jervois. Seemingly undeterred by the sales progress of its existing projects, SingLand secured a 0.8ha site at Jervois Road for $118.9m or $880.7 psf ppr, in a tender under the Government Land Sales programme which attracted 18 bids. Located about 800m away from Redhill MRT station, the site can yield around 140 units and we estimate the breakeven at $1,330 psf, with a potential ASP of $1,550 psf for a 14.2% pre-tax margin.

Prospects are not attractive. Given the expected slim margins for its residential developments and the challenging office sector outlook, we maintain our Sell recommendation. We also trim our target price to $4.86, pegged at a 50% discount to its RNAV.