Low-Cost Legacy Land. BS holds 4.2mil sqft of landbank in Singapore, which places it second among listed developers. About 74% of this is low-cost legacy land from its days in the rubber plantation business, resulting in EBIT margins of 36% to 53%, which is higher than the usual 15- 20% EBIT margin associated with mass-market properties.
This legacy land is zoned for landed housing, a subsegment of the residential market that has demonstrated greater resilience in the recent cycle. An increased scarcity of landed sites bodes well for future pricing power and unlocking of value. In 2005-06, BS diversified into the nonlanded segment, acquiring c.1.4mil sqft of GFA in the mid and high-end segments, enabling it to tap into a recovery in these segments filtering up from the mass-market.
Initiate Coverage with a BUY, TP S$6.02. TP is based on a 30% discount to RNAV of S$8.60, to account for its low liquidity and expectation of a more gradual monetisation of its landbank. The stock is currently trading at 0.5x P/RNAV, the lowest in the sector, presenting undemanding valuations for value investors with a longer-term view.
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