Stamford Land - Almost All About Currencies; Counting On Reversal

Stamford Land has, like sister-company Singapore Shipping, cut its final dividend to 1 cent from 1.5 cents, and skipped the special, which was 1 cent a year ago, for a total 75% reduction (half for Sing Ship to 1 cent, excluding the 12-cent special the year before). Stamford Land posted a $6.67 mln loss in Q4 bringing the total profit for the fiscal year to $4.08 mln, vs $42.94 mln the year before.

Stamford Land’s property development business suffered like everyone else anywhere in the world during the March quarter (Stamford Land’s Q4). Sale & marketing expenses relating to Stamford Residences & Reynell Terrace in Sydney (122 apartments, 2 penthouses, 5 terraces and retail space) amounted to $2.9 mln in the fiscal year, for instance. (Stamford Land recognizes development profit only on completion; the latest fiscal year saw the completion of Stamford Residences in Auckland.)

The hotel business however did not fare too badly, with revenue effectively up, if we take into account the 20% drop on currency translation.

The weakness of the A$ and NZ$ clearly contributed, with forex losses totaling $6 mln in the latest fiscal year, and which played havoc with Other Reserves, which went from positive $46.2 mln as at Mar ’08 to minus $32.72 mln at end Dec ’08 (during which A$ fell to a low of 0.91 against S$ from Oct ’07 high of $1.35), and minus $16.55 mln at end Mar ’09 (A$ recovered to $1.07; but NZ$ hit a low of 76 cents against S$ vs $1.21 high in July ’07). This in turn helps explain the drop in NAV per share to 41 cents at end Mar’09 from 51 cents a year ago.

The swing to $4.43 mln deferred tax charge for the latest year, from $14.82 mln deferred tax credit is also a major feature of Stamford Land’s results. Note that the $42.9 mln profit for ye Mar ’08 was largely due to the deferred tax benefit. The company assures of strong profits for fiscal years ending Mar 2011 and 2012, when rental income from the office development (Dynons Plaza) kicks in, and when Stamford Residences & Reynell Terraces is due for completion (80% sold as at end Mar ‘09), respectively. (Stamford Land recognizes development profit only on completion; the lastest fiscal year saw the completion of Stamford Residences in Auckland.) We are inclined to upgrade the stock from HOLD.

Note the significant recovery of the A$ in recent months, thanks to the strong recovery of commodity prices (up 14% in May making them the best performing asset class). With interest rates reduced significantly in the past year (to 3%, lowest in 49 years), economic recovery accompanied by rising property demand should not be too far behind. This should in turn help reverse much that went “wrong” in the last fiscal year.

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