SINGAPORE (Feb 2): CIMB Research is maintaining its “add” call on GuocoLand while raising its target price to $2.88 from $2.82 previously, after tweaking RNAV projections post the property developer’s 2Q18 financial results.

See: GuocoLand earnings fall 25% to $43 mil in 2Q on lower share of profit, higher expenses

In a Thursday report, analyst Lock Mun Yee says she continues to like GuocoLand for its increasingly stable recurrent income profile, as demonstrated from an improvement in topline in the latest quarter due to better performance in the Singapore residential sector.

She also highlights the continued progressive take-up of the group’s two ongoing residential projects, Sims Urban Oasis and Martin Modern, which were 92% and 46% sold, respectively, as at end-2017.

As such, the analyst expects progressive recognition of profits from these projects to continue underpinning the group’s projects, in addition to the progressive increase of rental contributions from its office space at Tanjong Pagar Centre, which is about 98% leased.

“The Sofitel Singapore City Centre was soft-opened in Sep 2017. The hotel currently enjoys an average 50% occupancy rate for the 150 rooms in operation. We reckon Tanjong Pagar Centre could generate c.$100-120 million in rental and hotel revenue when fully operational,” notes Lock.

Meanwhile, the analyst also believes the group’s joint venture project with Guoco Group at Beach Road is likely to enable it to leverage on the office rental upcycle, even as net debt to equity ratio is expected to rise from the 0.91 times at end-2Q with the remaining land payment due.

See: GuocoLand secures commercial site in Beach Road for $1.622 bil

“Potential re-rating catalysts are increasingly higher selling prices achieved for its ongoing residential projects in Singapore. Downside risk is a slower-than-expected recovery in the Singapore office and residential markets,” Lock concludes.

As at 10:58am, shares in GuocoLand are trading 2 cents lower at $2.23, or 3.16 times FY19F book with a dividend yield of 3.08%.