Singapore Land Limited

DBS GROUP RESEARCH on 13 March 2013

INCREASING accumulation of Singland shares by its major shareholder UIC in recent months has renewed investor interest and the realisation of the deep embedded value in the company has prompted us to take a deep-dive look at Singland.

We believe it has significant hidden value through its 53.06 per cent stake in unlisted Marina Centre Holdings (MCH), in addition to its large portfolio of 2.1 million sq ft of directly owned, centrally located, and suburban office space.

The group has also increased its land bank and now has 788,364 sq ft of residential gross floor area (GFA) in Singapore, to be developed over the next few years. We anticipate these growth engines to continue to be ramped up in the coming years.

Our see-through look at the value of MCH reveals that there is significant hidden value in its hotels and investment properties that are not reflected in its current book value.

The hotels are carried at cost, which we believe is below current replacement cost, while valuation of the investment properties is conservative. If marked to market, this could add 97 cents to our RNAV for Singland to $13.61.

As one of the largest hotel room owners in the Marina enclave, with 1,880 hotel rooms or about 4 per cent of total stock, there is a scarcity-value premium that can be attached.

In addition, there is more value creation through the redevelopment of the Marina Bayfront office block into an extension of the Marina Square retail space to improve the visibility and frontage of the shopping complex.

In addition, the current 20 per cent valuation disparity between office and retail space would also mean potential for value optimisation through space conversion.

We believe the makeover is timely and would enable the group to benefit from the rejuvenation of the Marina area, in tune with the AEI at Suntec City and completion of South Beach by 2015.

Conservatively, assuming similar valuations for the additional retail space when completed, we reckon the group could recognise a further three cents to RNAV.

We have raised our call to "buy" with an adjusted TP of $9.53, pegged at a 30 per cent discount to RNAV of $13.61.

Share price is currently trading at a 32 per cent discount to book NAV and 38 per cent below our RNAV estimate. We believe the stock continues to offer good value backed by a portfolio of quality assets.

Furthermore, with a lowly geared balance sheet and strong recurrent cash flow from leasing activities, Singland is in a good position to maintain a reasonable dividend yield, currently at 2.4 per cent.

The risk to our view for a potential closing of price gap to RNAV is if the major shareholder does not raise its stake further or if there is no recognition of the underlying value of MCH given its unlisted status.

BUY