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.