All Ready To Go. We met Allgreen management recently and came away assured that it remains in a good position to take advantage of current momentum in the mid-tier segment, given its enviable number of launch-ready projects. Net gearing remains low at 0.46x and management indicated it would be comfortable gearing up to 0.65x. Based on its 2Q09 balance sheet, it provides debt headroom of c. S$500m for any potential acquisitions. Its participation in the Chestnut Ave tender shows it is not averse to supplementing its landbank.
Visibility Improving. While FY09F earnings from its development properties segment will largely be underpinned by revenue recognition from Cairnhill Residences (TOP end-09), Cascadia and Pavilion Park, recent success at One Devonshire and VIVA will provide earnings visibility going into FY10F and FY11F. Potential launches in the pipeline will also contribute, as will its share from JV projects in China, which we believe could boost earnings from late FY10 onwards.
BUY, TP S$1.39. With four launch-ready projects in various locations, we believe Allgreen is poised to capitalise on buoyant sentiment in the mid-tier segment and realize its fair value. Any success in subsequent mass-market land tenders will likely be RNAV-accretive and provide a further catalyst for the stock. Allgreen remains our top mid-cap pick, with a TP of S$1.39.
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Still Hurting. The global economic downturn and the H1N1 scare continued to draw blood from hospitality play HPL, as it reported a 72% yoy drop in 2Q09 PATMI to S$4.4m, as revenue slid 27% to S$103m. Lower contribution from property development did not help things, as start-up losses from its associates (like interest expense at Farrer Court) further hurt its bottomline.
Highly Geared. Despite its exposure to the cashflow-generative hospitality sector, operating cashflow stayed weak at S$15m, which did little to change its net debt position of S$1.3bn. Gearing remains high at 1.0x.
Not Best Play on IR Story. Its hotel portfolio comprises properties in Singapore as well as overseas. Even as we input a 25% increase in RevPAR for 2010 and roll over to FY10 valuations, Singapore hotels only contribute c.25% of FY10 earnings and 33% of RNAV.
Maintain HOLD, TP S$2.05. Our RNAV is raised to S$2.56 (from S$2.13) and we narrow our RNAV discount to 20% in anticipation of a turnaround in the global hospitality industry. With a TP of S$2.05, stock looks expensive at current levels and we prefer CDL HT (TP S$1.36), Genting S’pore (TP S$0.98) and UOL (TP S$3.86) as plays on the IR story.
2Q FY2009 results. SC Global reported 2Q FY2009 revenue of S$226.4m (+599% yoy) and net profit of S$7.8m (-32% yoy). As SC Global’s stake in AVJennings Ltd increased to 50.03% in December 2008, the revenue of AVJennings Ltd had been consolidated as a subsidiary. This caused a significant increase in SC Global’s revenue. However, as AVJennings Ltd’s property business were mainly high volumes with lower margins, the net profit of SC Global was lower.
Earnings estimates for FY2009F to FY2011F. SC Global’s profit is expected to increase from S$34.0m in FY2009F to S$193.1m and S$195.8m in FY2010F and FY2011F respectively. This is because most of its residential projects are anticipated to be completed in FY2010F and FY2011F.
Outlook for FY2009F. SC Global highlights the recent strength in the Singapore residential property market. We expect it to launch properties for sale only next year when sentiment in the luxury market improves further. On the Australian market, it mentions that AVJennings Ltd continues to face market pressures and challenges.
Maintain HOLD recommendation, fair value raised from S$1.10 to S$1.52. Like other property stocks, SC Global’s share price has risen sharply in the recent rally. We are maintaining our hold recommendation as we feel that there is limited upside from its current share price. Nevertheless, as the sales momentum in the Singapore property market is expected to be strong, we are raising the fair value from S$1.10 to S$1.52. This is a change from 50% to 40% discount to the RNAV. The RNAV has also been raised from S$2.21 to S$2.53 due to the higher than expected increase in property prices.
