Stamford Land - Currency turning favorable

We can see that Australia Dollars (A$) plunged nearly 22% against Singapore Dollars (S$) from Jul ? Dec 2008. The sharp decline of A $ during this period resulted in huge translation losses for Stamford Land's FY09 result. Weaknesses in A$ prolonged and extended till around Mar 2009, when global economy was believed to have bottomed. Since Mar 2009, A$ managed to gain strength and recovered nearly 14% against S $. Current spot rate stands at about S$1.20/A$.

The recent 1Q10 results of Stamford Land clearly portrayed the positive impact of stronger A$ to its financials. Foreign currency translation reserve increased from a negative S$16.7m to a positive S$18.6m. The improvement inevitably lifted Stamford Land's total equity value.

Taking Bloomberg's year 2010 consensus forecast of S$1.19/A$ by various international lenders into account, we believe that current strength of A$ can be sustained and valuation of Stamford Land can have room to improve.

In consideration of future sustainable strength of A$ against S$, we imply a 10% appreciation of A$ into FY10E, and a further 5% for FY11E. On top of that, we also reduced the capitalization rate of Stamford Land's hotel properties from 6.5% to 6.0% to be more inline with the gradual property market recovery in Australia. Our target price has thus been increased to S$0.48 and we upgrade Stamford Land to BUY.

Sponsored Links

Related Posts by Categories