Brokers' take: DBS initiates GuocoLand with 'buy' on strength in property development

DBS Group Research has initiated coverage on GuocoLand : F17 0% with a "buy" call, noting that the property developer is a play into future-ready living with its high-end residential projects and its growing portfolio of quality investment properties.

The research team has a target price of S$2.30 on the counter, which represents a potential upside of around 51 per cent, it said in a report on Tuesday (Apr 5).

It noted that GuocoLand currently trades at 0.4 times its net asset value, which is below its 5-year historical mean and lower than peers' average of 0.62 times. The valuations are "unjustifiably low" given its expertise in property development and strong project pre-sales, thus providing an attractive entry point, the research team said.

Shares of GuocoLand were trading at S$1.64 as at 11.36am on Tuesday, up S$0.11 or 7.2 per cent.

DBS noted that GuocoLand has a strong pipeline of development properties located in prime urban areas that are built around the future lifestyles of people with rising expectations of comfort and convenience.

This should appeal to homebuyers looking for more quality residential developments, especially as flexible working arrangements becomes the norm in a post-Covid-19 world, while the border reopening should also drive the return of foreign demand for private residential properties in Singapore, the research team said.

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Consistent solid sales also signal an incoming earnings boost as the group recognises profits of its sold projects in the coming years. GuocoLand has more than S$4 billion of development projects on the books of which a substantial portion has been sold, DBS noted.

Meanwhile, the research team expects GuocoLand can also ride on the office upcycle amid a shift in demand towards quality office space with an increased emphasis on well-being.

DBS is also positive on GuocoLand's steady rental income from its investment properties as its growing portfolio of investment properties can allow the group to pivot towards building a more stable and recurring income base, mitigating the earnings volatility in the development properties segment.

The group's hotel business, comprising properties in Singapore and Malaysia, should gain from border reopenings. Singapore is set to reopen to all fully-vaccinated travellers from April and Malaysia is poised to benefit from both domestic and international travel recovery.

Additionally, DBS said GuocoLand could possibly undergo securitisation or be converted into a stapled security to unlock more value.

Through securitisation, GuocoLand could possibly carve out a real estate investment trust (Reit) from its investment property portfolio, which can allow it to monetise its commercial developments and gain tax transparency. Meanwhile, a conversion into a stapled security can provide higher tax efficient yields while continuing to invest in development projects.

READ MORE:

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