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Bukit Sembawang Estates (S$3.59) - Focus on inherent value again
Friday, June 12, 2009
The successful launch of The Verdure has given us optimism that management is finally taken steps to realise the inherent value of its inventory. BukitSemb has 5m sf of low-cost landbank. Balance sheet and cash flow are set to improve significantly after its rights issue and successful new launches. The stock has been a laggard in this rally vs. purer residential developers, trading below its historical P/BV of 1.5x. We lower our FY10-11 core EPS estimates by 32-86% on the back of deferred earnings from Paterson Suites, Fairways Condo and St. Thomas Walk as we expect these projects to enter the market later. We also roll forward our RNAV to CY10 and lower our RNAV estimate from S$6.45 to S$5.54, after factoring in dilution from the rights issue as well as higher ASP assumptions. In addition, we reduce our RNAV discount from 40% to 25% to reflect mid-cycle valuations. All in all, our target price rises from S$3.87 to S$4.15. With a considerable low-cost landbank and exposure to the resilient upgraders' market, we believe BukitSemb will benefit from the ongoing volume spurt in the physical market. Upgrade from Underperform to Outperform.
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