GuocoLand – standing tall among other property developers

Group profit before tax saw an increase of 53.8% to SGD 239.9m in FY21, mainly due to a decrease in the fair value loss on derivative financial instruments. From Figure 2, profit for GUOLSP has largely seen a downward trend, with profit before tax dipping 36.2% YoY in FY19 when compared to FY18.

On 16 December 2021, the Singapore government raised the additional buyer’s stamp duty for Singapore citizens, permanent residents and foreigners. The total debt servicing ratio (“TDSR”) threshold for obtaining loans was narrowed to 55% from 60%. This may affect future home sales due to the tightening of TDSR as it affects the buyers’ ability to get a loan to purchase additional property to rent or stay.

Figure 2: GUOLSP’s profits (in SGD m)

Figure 3: Residential property price index by type 

From Figure 3, property prices fell slightly before rebounding after the property cooling measures in 2018. We think property prices would not be significantly impacted in the long run due to the cooling measures. Home sales may decrease in the first few quarters of next year due to the measures. However, most of GUOLSP’s projects that are expected to be completed next year have been sold as seen from Table 1. Thus, we believe that the cooling measures will not have a large impact on GUOLSP’s revenue.

Table 1: GUOLSP’s pipeline of prominent development projects in Singapore

As of 30 June 2021, GUOLSP has 8 major development projects in its pipeline, most of which are expected to be completed by 2025. SGD 3.11b of revenue from development projects are to be recognised over the next few years of which SGD 1.66b are to be recognised over time and SGD 1.45b are to be recognised at a point in time. There are 4 development projects expected to be partially completed and accretive to revenue progressively in 2022.

Given the pipeline of future property development projects currently in progress, we expect GUOLSP to see healthy cash flow and revenue moving forward. In their GuocoLand China segment, revenues are expected to stream in between 2022 and 2024 which will provide a boost to the lost making segment. 

Table 2: GUOLSP’s pipeline of major development projects

Liquidity and credit profile

Liquidity for GUOLSP is healthy with cash and cash equivalents of SGD 1.13b, of which; (i) SGD 214.8m are held under Singapore Housing Developers Rules; (ii) SGD 125.5m under the China Housing Developers Restricted Funds Agreement; (iii) SGD 3.9m under Malaysia’s Housing Development Act; (iv) SGD 5.8m of cash collaterals with financial institutions in Singapore for bank loans. Therefore, among the SGD 1.13b in cash and cash equivalents, SGD 350.0m are restricted cash and SGD 779.29m are unrestricted cash and term deposits.

Cash flows for GUOLSP turned positive in FY21 as cash from operations amounted to SGD 388.2m as compared to a net cash used from operations of SGD 731.9m in FY20. Gearing for the company also dropped YoY. In Figure 3, net debt to equity fell to 0.90 in FY21 compared to 1.02x the year prior.

Figure 4: GUOLSP’s equity and net debt 

Total borrowings for FY21 was SGD 5.11b, of which SGD 947.4m are short term borrowings. With its cash position, GUOLSP has enough cash (including restricted cash) to cover its short term borrowings, with cash to short term debt at 1.19x. As compared to other property developers, GUOLSP is more leveraged with a net debt to equity of 90.00%. However, we think given the pipeline of future projects and also its current cash balance, GUOLSP will have sufficient cash flows to pay back its debt obligations.

Table 3: Estimated credit ratios of comparable property developers

From Table 3, GUOLSP is more leveraged as compared to peers with a net debt to equity of 90.00%. The company has a net debt to total assets of 45.20%. Other than the Housing Developers (Control and Licensing) Act that requires certain subsidiaries of the Company to maintain a minimum paid-up capital of $1,000,000, the Company and its subsidiaries are not subject to externally imposed capital requirements.

Given its cash balance and healthy cashflows, GUOLSP is able to pay down its debt obligations. With an interest coverage ratio of ~1.94, earnings from the company is able to pay down its financing costs and future pipeline of development projects will provide a steady stream of income to the company.

Relative Valuation

Figure 5: Relative valuation among SGD property developer issues

In Figure 5, taking a look at the relative valuation of GUOLSP’s issuances among other property developer issues, we see that the yield curve for GUOLSP sits above other SGD property developer bonds. This is likely due to GUOLSP being more leveraged as compared to its peers as seen from Table 2.

Among GUOLSP notes, we recommend the GUOLSP 3.400% 10Aug2025 Corp (SGD) with an indicative yield to maturity of 2.95%. Among the notes maturing between 2-4 years, the GUOLSP 3.4% 2025’s offer the highest yield to maturity.

We think that given GUOLSP’s liquidity and future pipeline of development projects, GUOLSP will be able to pay its future debt obligations and it is recommended for investors who seek a stable income for the next 3 years.

Figure 6: Relative valuation among other real estate perpetual notes

Among perpetual notes issued by other real estate issuers (property developers and REITs), GUOLSP 4.600% Perpetual Corp (SGD) has a yield to next call (“YTC”) of 3.68% with about 1 year to its call date on 23 January 2023. However, the FPLSP 4.380% perpetual notes look more attractive in comparison providing a higher YTC of 4.40%. Additionally, FPLSP’s is less leveraged as compared to GUOLSP as seen from Table 3 and has a higher cash position of SGD 3,776.7m, making FPLSP a less risky option in comparison.

Conclusion

The property cooling measures in Singapore will affect home sales in the first half of 2022 but they are unlikely to put a dent to home prices. A majority of GUOLSP’s completed projects have been sold thus we believe that the cooling measures will not have a large impact on GUOLSP’s revenue. With a healthy amount of projects in its pipeline, GUOLSP will continue to see cash flows coming in from the completion of these projects. We recommend the GUOLSP 3.400% 10Aug2025 Corp (SGD) with an indicative yield to maturity of 2.95% as it provides the most attractive yield for notes maturing within 2 to 4 years when compared to other property developers.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in GUOLSP 3.290% 26Oct2026 Corp (SGD), FPLSP 4.980% Perpetual Corp (SGD), OUECT 3.950% 02Jun2026 Corp (SGD) and OUECT 3.950% 02Jun2026 Corp (SGD) and the analyst who produced this report holds a NIL position in the abovementioned securities.