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.

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Stamford Land - 1Q10 results in line

Revenue in 1Q10 withdrew 10.2% YoY to S$54.4m due mainly to lower occupancy rates and exchange rates. As stated in our previous report, we believe that impact of global economic crisis and on-going H1N1 virus concerns will continue to plague hotel occupancy of Stamford Land. The top-line result is much in line with our adjusted forecast since FY09.

However, overall operating expenses were better contained in 1Q10 as management implemented tighter cost controls including reduction of manpower. This resulted in a stronger operating profit margin of 9.2% on a QoQ basis (a loss in 4Q09), but still way below the higher 16.9% in 1Q09.

On a QoQ basis, we reckoned an improvement in Stamford Land’s property development and investment business segment. Operating profit from this business turned black as the 14 apartments unloaded at The Stamford Residences Auckland in 1Q10 helped lift some profit.

Given also much lesser deferred tax charge in 1Q10, Stamford Land managed to be profitable again in 1Q10 as compared to 4Q09, recognizing S$3.2m net profit VS a loss of S$6.8m in 4Q09.
1) Occupancy rate will continue to be under strong pressure;
2) ASP for The Stamford Residences Auckland (< 50% sold) will maintain only at near breakeven pricing in the shortterm;
3) Main contributing catalyst, The Stamford Residences & Reynell Terraces in Sydney (> 80% sold), will only be recognized in FY11 and FY12 upon completion;

Considering the above factors, we maintain our RNAV forecast of S$0.67. An illiquidity discount of 50% fixed our target price at S$0.34. Should liquidity of the stock be better, we believe that Stamford Land could potentially be a highly undervalued stock. Maintain HOLD with target price of S$0.34.

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.