Bukit Sembawang Estates - Verdure, Luxus yet to contribute

1Q FY10 PATMI of S$1.4mn (-84% y-y, -102% q-q) meets 73% of our full-year forecast of S$1.9mn. The variance to our forecast is, in our view, principally on account of the treatment of property development-related other operating expenses and interest costs - 1Q FY10 other operating expenses of S$0.2mn and interest costs of S$0.7mn meet just 3% and 4% of our full-year forecasts. The firm has suspended the capitalisation of these expenses for deferred projects and we have taken this into account in our forecast – for instance, 1Q FY10 cash interest paid of S$4.67mn meets 25.9% of our FY10F interest expense forecast of S$18mn and is in line with our expectation, despite the P&L discrepancy.

While 1Q FY10 revenue of S$6.4mn (-72% y-y, +32% q-q) meets just 12% of our full-year forecast of S$54.3mn, we expect the sales of Verdure and Luxus Hills Phase 1 to be recognised in subsequent quarters this FY and help full-year numbers meet our forecast. In addition, we are likely to raise our forecast to reflect better-than-expected sales at the two projects. As at end-June, Verdure had 69 out of the total 75 units sold, vs the 62 units inputted in our model. In essence, only the six strata villas in the project remained unsold. We understand that Luxus Hills Phase 1, which was launched in July, already has 75 out of the total 78 units sold, vs the 70 units assumed in our model. Further, the achieved selling prices were apparently higher than our assumption of S$544psf of build-up area, at circa S$583-683psf.

While the management gave a conservative guidance (“management remains cautious during this expansionary period”), we think some projects could be brought forward to capitalise on the current window of opportunity. Potential candidates include cluster housing project Watercove Ville and Luxus Hills Phase 2, which could provide further upside to our estimates.

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