Broker’s take: DBS says Bukit Sembawang land bank undervalued, initiates with ‘buy’

Fri, Oct 23, 2020 – 12:41 PM

DBS Group Research has initiated coverage on Bukit Sembawang Estates with “buy” and a S$5.44 target price.

The research team said the property developer’s large land bank is undervalued and able to last another decade. The land is pegged at “extremely low” historical cost valuation. DBS estimates a revalued net asset value of S$12.10 per share.

Bukit Sembawang’s land bank, which is slated for landed property, is estimated to be over 235,000 square metres.

DBS also said the stock offers “compelling value”, trading at a price-to-book ratio of 0.7 times near -2 standard deviation of historical means.

Moreover, dividend normalisation is a catalyst for Bukit Sembawang, DBS analyst Derek Tan said. With strong sales across its landed development projects in the past year and a pipeline of new projects, the research team believes Bukit Sembawang may eventually raise dividends back to the 18 to 33 Singapore cents per share range, implying a “Reit-like” yield of 5 to 9 per cent.

“As Bukit Sembawang’s land bank is utilised, we estimate that long-term investors could receive some 70 per cent of their capital from holding on to Bukit Sembawang for the next decade,” Mr Tan said.

The property developer’s move to pivot its business model to build a recurring income base is also a welcome strategy. This could generate revenues of about S$11 million per annum, DBS said. The group will debut this strategy with its serviced apartment Fraser Residence Orchard.

With an almost net cash balance sheet, Bukit Sembawang can gear up to fund acquisitions. Assuming a target net debt-to-equity ratio of 0.3 to 0.6 times, the group has potential debt-funded headroom of about S$360 million to S$750 million, Mr Tan said.

Shares of mainboard-listed Bukit Sembawang were trading up 1.7 per cent or S$0.06 to S$3.57 as at the midday break on Friday.

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