Source : Business Times - 2 Jun 2008
AmFraser Securities Pte Ltd on Wednesday initiated a buy call on property group Singapore Land Limited and pegged its target price at $8.22 a share.
At 3.45 pm, SingLand was trading around $6.19 a share, down 6 cents or 1 per cent from Tuesday’s close.
‘We put fair value at $8.22, based on a 30 per cent discount to our RNAV estimate of $11.75, in view of a moderating property cycle. Trading at a P/B ratio of 0.64 and at a 24% discount to our target price, we think that SingLand is grossly oversold at current price of $6.25,’ AmFraser’s analyst Henry Tan said in the research report.
The analyst said that at current share price, the implied value of SingLand’s quality office assets is cheap at $630 psf compared to recent transacted values of $2,000 psf - $3,000 psf.
Mr Tan added that the company, with an office property portfolio of 2.6 million square foot of net lettable area in Singapore, of which 80 per cent is located in the CBD, is a prime beneficiary of rising office rental rates.
‘New supply of office space is expected to be tight till 2010 while net incremental demand is projected at 2m sf p.a., boosting market occupancy rates to a peak 95.3 per centin 2009. On reversion rates at a-third of occupancy, we forecast SingLand’s office investment revenues to jump 20 per cent in FY08 and 46 per cent in FY09. Office assets account for 75 per cent of RNAV.’
The company’s most significant mall, Marina Square, and all three hotels in downtown Marina Centre, stands to benefit from increased traffic flow and the Formula One (F1) Grand Prix event routed in the area every September, Mr Tan noted.
‘ We have assumed cap rates of 5 per cent for SingLand’s office assets; however, amidst strong investment demand for office properties in a strong rental cycle, there is room for downside to cap rates. A one percentage point fall in cap rates will raise our RNAV estimate by 19 per cent to 13.98, boosting fair value to $9.79,’ Mr Tan said.
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