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DBS suspends coverage of Bukit Sembawang Estates; keeps 'buy'

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DBS was the only house covering the stock.

DBS Group Research has suspended its coverage of Bukit Sembawang Estates due to the reallocation of resources. DBS was the only house covering the stock.

Analyst Rachel Tan is given the counter a “buy” call with a target price of $5.92, which assumes a 45% discount to the counter’s revised net asset value (RNAV) of $10.76.

“Our RNAV pegs 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 Bukit Sembawang’s four development projects,” she writes.

In her view, the group offers compelling value at 0.86x P/NAV, which is below its historical mean of 0.94x.

The group also has an undervalued land bank that can last another decade.

“Bukit Sembawang is equipped with a sizeable land bank of over 240,000 sqm slated for coveted landed homes. The group has enough inventory to sell for the next decade, with the land pegged at extremely low historical costs,” she says.

With strong sales across its landed development projects in the past year and a pipeline of new projects, Tan sees Bukit Sembawang maintaining dividends in the range of 18 cents to 33 cents per share.

This implies a yield of 4% to 7%, similar to that of a real estate investment trust (REIT).

“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,” says Tan.

The group’s intention to pivot towards building a recurring income base is a “welcome strategy”, she adds.

“[This will begin] from Frasers Residence Orchard, which could generate revenues of $11 million per annum. With net cash of $300 million even after paying the declared dividend, Bukit Sembawang can gear up to fund acquisitions,” continues Tan. “Assuming a target net debt-equity ratio of 0.3x-0.6x, the group has potential firepower of $750 million –$1.19 billion.”

In her final report, Tan has pencilled in higher growth in the FY2022 to FY2023, although the implementation of drastic property cooling measures, a resurgence in Covid-19 in Singapore, or a downturn in the property market could be downside risks.

Shares in Bukit Sembawang closed 1 cent higher or 0.2% up at $4.92 on June 28.

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