DBS Group Research analysts Tabitha Foo and Derek Tan have kept “buy” on GuocoLand F17 with a lower target price of $2 from $2.30 previously after the company’s FY2024 ended June operating profit fell short of their estimates.
GuocoLand’s FY2024 operating profit grew 13% y-o-y to $320 million. However, it only accounts for about 80% of DBS’s estimates on lower-than-expected margins despite revenue growth of 18% y-o-y to $1.8 billion, beating the analysts’ estimates.
That said, the analysts point out exciting times ahead for GuocoLand on both the property development and investment fronts. The company’s property development business remains resilient, with strong pre-sales across most of its projects, despite higher interest rates and inflationary pressure.
“We continue to be optimistic on this front, as we anticipate the group will be able to replicate its end-to-end capabilities in future projects and see a similarly impressive sales momentum. We also believe that the flight-to-quality trend will lead the office market recovery in Singapore, with GuocoLand well positioned to capitalise on this trend by sustaining its high occupancy rates and positive rent reversions,” they add.
DBS also highlights GuocoLand’s attractive valuations, with share price trading at a price to net asset value (P/NAV) multiple of less than 0.4 times and close to 4% yield.
With a growing portfolio of commercial assets, the potential conversion into a “stapled security” could be a significant share price catalyst with potential upside of 30%-60%, based on DBS’s estimates.
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Tha analysts have lowered their earnings estimates on the back of reductions to their margin assumptions, partially offset by higher property development revenue.
“We remain positive on GuocoLand’s twin engines of growth, underpinned by the robust sales momentum for residential units as well as the positive reversions and high occupancy rates for its quality office assets. With the overall price quantum of $1.7 million to $2 million falling in a ‘sweet spot’ for buyers, GuocoLand’s outside central region projects should be well supported, especially by HDB upgraders,” they note.
As at 11.52am, shares in GuocoLand are trading flat at $1.53.
