Bukit Sembawang may offer Reit-like dividends as 'land bank king'

BUKIT Sembawang Estates has enough inventory to sell for the next decade, with the land the developer controls still pegged at "extremely low" historical cost valuation, said a fresh DBS Research report. This pipeline could give Bukit Sembawang room to offer dividends at "Reit-like" yields.

"Return of the land bank king," said DBS. "Bukit Sembawang offers compelling value."

In a Tuesday report, DBS said it expects the company to maintain its dividends in the range of 18 to 33 Singapore cents per share, or equivalent to a yield of 4 to 7 per cent.

The mainboard-listed property developer reported in late-May that its earnings more than doubled for the fiscal 2021 ended March 31 this year. It also upped its special dividend to 29 Singapore cents per share from 7 Singapore cents the year before, on top of recommending a final dividend of 4 Singapore cents per share for fiscal year 2021, the same as last year's.

The company does not distribute interim dividends, so for the full fiscal year, shareholders are being offered 33 cents per share in dividends, three times that of the year-ago period's 11 Singapore cents.

The brokerage predicted that long-term investors could receive about 70 per cent of their capital from holding on to Bukit Sembawang for the next decade, as the developer utilises its valuable land bank.

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DBS estimated that Bukit Sembawang's 240,000 square metre land bank slated for "coveted" landed homes means the developer's shares are now trading at a price to net asset value of 0.86 times. The stock would also be trading at a projected revalued net asset value (RNAV) of S$10.76 per share, based on the value of land Bukit Sembawang controls.

The brokerage kept its "buy" call with a target price of S$5.92. This means the target price is based on a 45 per cent discount to DBS's estimated RNAV.

To add, Bukit Sembawang in 2019 entered Singapore's serviced apartment space by opening Fraser Residence Orchard. This venture could generate revenues of about S$11 million per annum, DBS said.

This is a first step towards the company's plan of building a recurring income base - a "welcome strategy", the brokerage added.

DBS also said that Bukit Sembawang's net cash of about S$300 million - which already accounts for paying the declared dividend - can be used to fund acquisitions. Assuming a target net debt-equity ratio of 0.3-0.6 times, the group has potential firepower of S$750 million to S$1.19 billion.

Bukit Sembawang reported net profit of S$189.4 million for fiscal 2021, which was stronger than the S$76.1 million reported in the year-ago period. The results reflected higher profit booked from development projects, absence of impairment loss as well as lower borrowing costs.

Its top line was S$581.0 million, 57 per cent higher year-on-year than S$369.7 million.

Key risks ahead would be an implementation of drastic property cooling measures, resurgence of Covid-19 in Singapore, and a downturn in the property market, the brokerage said.

As at the midday break, shares of B61 : B61 0% traded S$0.01 higher at S$4.96. The stock has gained about 24 per cent since the start of the year, outperforming the Straits Times Index's year-to-date gains of about 11 per cent.