Event
The downside risks in the office sector have heightened in view of waning business sentiments and ample new office supply; the potential redevelopment of Tuan Sing’s office properties could be delayed. Management’s priority seems to be on the upcoming launches of the four private residential projects in their pipeline. We adjust our office and some of our residential development assumptions and lower our target price from $0.58 to $0.48. Maintain Buy on valuation grounds.
Our View
With the negative market sentiments weighing on the office sector, management is a little more cautious than before. Chances of a redevelopment of Tuan Sing’s prime office buildings are now hanging on the thread, supported by our view that the incremental value from redeveloping the old buildings is thinning (from $0.11/share to $0.08/share) as we lower our prime Grade A rental assumptions from the already conservative $9.70psf to $9.10psf.
Management’s priority is to work on the launches of its four private residential projects in the pipeline. Based on our channel checks, only two out of 32 units of cluster houses at Mont Timah have been sold since the project’s completion in March due to the huge quantum of each unit ($5.7m-$6.9m).
However, the demand for the three mid to high end projects at Seletar Road, Cluny Park Road (near upcoming Botanic Garden MRT station), and the new site at Upper Serangoon Road (near Potong Pasir MRT station) are likely to be strong due to their good locations.
Action & Recommendation
The stock trades at its 10-year historical P/B average of 0.6x, lower than the 2nd-tier property sector average P/B of 0.7x. We ascribe a 30% conglomerate discount to our SOTP estimate $0.68/share (prev. $0.74). Maintain Buy on valuation grounds.
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