Wheelock Properties (S) Ltd - Limited catalysts (CIMB)

NEUTRAL Downgraded

S$1.88 Target: S$2.06

Mkt.Cap: S$2,250m/US$1,872m

• Below; downgrade to Neutral from Outperform. 2Q11 core net profit of S$37.2m (-55% yoy) forms just 14% of our full-year estimate and is also below consensus estimate. 1H11 core net profit accounts for 34% of our figure. The variance was attributable to zero new sales at Orchard View in 2Q11 and slower recognition of Scotts Square. Factoring in slower sales for its residential projects, we adjust our FY11-13 core EPS estimates by -38/+17% and reduce our target price to S$2.06 from S$2.39, now pegging the stock at a larger 20% (previously 10%) discount to RNAV in view of limited catalysts. While Wheelock’s value is underpinned by its large cash hoard, there is a seeming lack of lucrative acquisition opportunities locally while its high-end residential sales are not picking up. Given its share-price outperformance against the other developers in the past three months, we see better value elsewhere. We thus downgrade the stock to Neutral.

• Sales remained slow. 2Q11 revenue fell 62% yoy on lower revenue recognition of Scotts Square and a higher base in 2Q10 from the completion of Ardmore II and Orchard View in 2Q10. Sales also lacked any booster from Orchard View, with no new sales in the quarter. Meanwhile, six units of Scotts Square were sold with completion expected in 3Q11. Though the pace of sales remained slow, prices held up well. Management intends to launch Ardmore III in 4Q11.

• Wheelock Place still delivering good recurring income. Occupancy at Wheelock Place strengthened to 99% from 98% the last quarter. Management also reduced the remaining expiring leases by half from the last quarter on renewals and positive reversions for its office space. The completion of the retail portion of Scotts Square in 2H11 should contribute to recurring earnings.

• Cash-rich but nothing to buy? While Wheelock still boasted strong net cash of S$503m (42cts/share), we see a lack of land-banking and acquisition opportunities with physical prices remaining elevated. Its Chinese site purchase is a potential indication of management’s view of a lack of value locally.