Event
We review the redevelopment potential of Tuan Sing’s old office properties in the CBD in the light of a more visible office development pipeline from the Singapore-Malaysian joint venture company, M+S Pte Ltd. The outlook for the office property market remains positive and the key catalysts for a re-rating for Tuan Sing remain intact. Maintain BUY with a target price of $0.64.
Our View:
The scale of the sites to be developed by M+S Pte Ltd may pose some risks to the office rental market from 2015 onward, even though these developments will be completed in phases over several years.
There is a rising supply of office space from the completion of new developments and secondary office space that surface when tenants relocate to their pre-committed new premises. Nonetheless, the average gross rental for Grade A office space continued to register healthy QoQ growth in 2Q11 and offices in the CBD fringe continued to draw interest from buyers. In 2011, 0.8m sq ft of existing office stock will be removed for redevelopment. Hence, office net absorption is still expected to be healthy in the next five years.
Tuan Sing, the landlord of Robinson Towers and International Factors Building, is expected to redevelop these buildings to take advantage of tenants’ flight to quality and the companies’ need for expansion. Given the relatively low estimated redevelopment cost, we believe Tuan Sing will be well-positioned to price out its competitors (including M+S Pte Ltd) in the rental market.
Action & Recommendation:
The redevelopment of its office properties and the potential acquisition of coal mining assets are key near-term catalysts for a re-rating of this mini-conglomerate. Reiterate BUY with a target price of $0.64, pegged at a 15% discount to its RNAV of $0.76.
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