The discount to RNAV of this mid-cap developer will shock you

By PC Lee / The Edge Singapore | February 22, 2018 2:55 PM SGT
SINGAPORE (Feb 22): Maybank Kim Eng is maintaining its "buy" on Bukit Sembawang given it is a proxy for the cyclical upturn in Singapore’s residential market, adding this under-the-radar mid-cap developer is attractively priced against the large caps.
The earnings of this developer are also expected to rebound in FY19/20 after six years of decline.
It also has a pristine balance sheet with $227 million net cash and attractive valuation at 41% discount to RNAV.
Bukit Sembawang held the preview for the first phase of Watercove in May 2017. Maybank is lifting the developer's projected earnings for FY18 to reflect the sales of three terrace houses at Nim Collection and 43 homes at Watercove
"We believe Bukit Sembawang can capitalise on improving sentiments in the luxury market with the launch of 8 St Thomas in the coming year," says analyst Derrick Heng in a Wednesday report.
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Maybank also believes the recent increase in Buyer’s Stamp Duty will not derail the housing recovery and continue to see Bukit Sembawang as a concentrated proxy for this.
The recently announced increase in Buyer’s Stamp Duty will not derail the housing recovery in Singapore. For a $2.7 million terrace house, the price hike of $17,000 is just 0.6% of the property value.
Bukit Sembawang was granted written approval to convert 85-unit Paterson Collection into 112 units of serviced apartments, while retaining three existing residential units.
It has therefore reclassified the asset from development properties into property, plant and equipment.
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It has also paid a one-off $31.8 million Additional Buyer’s Stamp Duty in 3Q18 and is no longer subjected to extension premiums under the Qualifying Certificate rules.
Maybank assumes Bukit Sembawang will need to incur another $25 million of capex to fit out the property for leasing. On a stabilised basis, it estimates recurring EBITDA of $6.2 million and a yield on cost of 2.3-2.6%.
Maybank is thus removing Paterson Collection from its sales forecasts and incorporate leasing income at the property.
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The research house is also lifting FY18 earnings to reflect the sales of three terrace houses at Nim Collection and 43 homes at Watercove.
"Maintain 'buy' and $8.25 target price, based on 20% discount to RNAV of $10.35," says Heng.
This story, written by PC Lee for The Edge Singapore, first appeared on Feb 22.