On the back of Bukit Sembawang’s stellar performance in the FY2020/2021 ended March, DBS Group Research analysts Woon Bing Yong and Derek Tan are keeping “buy” on the counter with a higher target price of $5.92 from $5.44 previously.

The brokerage is the only house to have coverage on the counter.

The higher target price is based on a 45% discount to the developer’s revised net asset value (RNAV).

The developer posted a 149% y-o-y surge in earnings to $189.4 million, as well as 57% higher revenue to $581 million for the period, which beat Woon and Tan’s estimates.

See: Bukit Sembawang posts 149% higher FY21 earnings, declares final and special dividends totalling 33 cents per share

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The way Woon and Tan see it, Bukit Sembawang offers compelling value at 0.86 times price-to-net asset value (P/NAV) below its historical mean of 0.94 times.

The group has an undervalued land bank of over 240,000 sqm slated for coveted landed properties, which is enough inventory to sell for the next decade.

The land it has, is pegged at “extremely low” historical costs, which Woon and Tan estimate to be at an RNAV of $10.76 per share.

On Bukit Sembawang’s proposed dividend of 33 cents per share for the FY2020/2021, which is back at its previous highs last seen in FY2014/2015, Woon and Tan believe the figure can be maintained within the range of 18 to 33 cents per share, implying a “REIT-like” yield of 4-7%.

This, say the analysts, is due to the group’s “strong sales across its landed development projects in the past year”, as well as a pipeline of new projects.

“As Bukit Sembawang’s land bank is utilised, we estimate that long-term investors could receive 70% of their capital from holding on to Bukit Sembawang for the next decade,” they write in a June 8 report.

The group’s decision to pivot towards building a recurring income base, starting from Frasers Residence Orchard, is seen as a “welcome strategy”.

The move could generate revenues of $11 million per annum, say the analysts.

After paying its declared dividend, the group will have a net cash of $300 million, which it can “gear up to fund acquisitions”.

“Assuming a target net debt-equity ratio of 0.3-0.6 times, the group has potential firepower of $750 million – $1.19 billion,” write Woon and Tan.

On their higher target price, Woon and Tan have pegged Bukit Sembawang’s Ang Mo Kio Ave 5 land at $790 per sq ft of gross floor area (GFA) and estimates a surplus value of $318 million from its four development projects.

The analysts have also pencilled in higher growth estimates for the FY2022/2023.

That said, risks include a downturn in the property market, potential drastic property cooling measures, as well as a resurgence of Covid-19 cases in Singapore.

As at 4.23pm, shares in Bukit Sembawang are trading 5 cents higher or 1.0% up at $5.21, or 0.8 times P/B, according to DBS’s estimates.

Cover photo: Sembawang Estates