A Go or No for $GuocoLand(F17)?

A Go or No for $GuocoLand(F17)?

This article is jointly written by @fayewang, @calvinwee and @gordonong.

1. Brief Background
Guocoland ($GuocoLand(F17)) is a leading property developer and investor with business interests in Singapore, China, Malaysia and Vietnam. Its core businesses include:
1. Commercial properties
2. Residential properties
3. Hospitality properties
4. Retail properties
5. Integrated properties

2. Recent News and Events
April 24, ‘GuocoLand to launch Martin Modern condo project in 2H 2017’, refer to the news at http://www.businesstimes.com.sg/companies-…

April 20, ‘Higher sales lift Q3 profit at GuocoLand’, refer to the news at

April 3, ‘GuocoLand scaling up in UK, Australia while keeping tabs on core markets’ refer to the news at

April 5, ‘Singapore: GuocoLand expands to UK & AUS; Ascott expands business in Brazil’ refer to the news at

November 29 2016, ‘GuocoLand reports 46% rise in Q2 earning GuocoLand’s China unit wins tender for 4 land plots at 3.64b yuans, refer to the news at http://www.businesstimes.com.sg/companies-…

October 7, 2016, Guocoland’s annual report of FY2016, refer to the report at: https://www.guocoland.com.sg/Documents/Ann…

3. Performance Summary
GuocoLand was facing declining revenues and profits, if not for the increase in earnings from disposal of subsidiaries. The company managed to improve their cash and debt positions, but not in a sustainable and organic manner. Hence, we find that the firm produced a less favourable operating performance and holds a weakened financial position. Based on segment weightage and historical stock performance, we would like to reiterate that Guocoland share price is essentially a proxy on the Singapore housing market. Fed rate hikes and any further relaxation of property cooling measures are two of the most vital factors influencing that market.

4. Financial Highlights
a. Operating performance

In the financial year 2014, GuocoLand observed a surge of revenue from $677.442m to $1,251.350m, which was mainly driven by sales of the Goodwood Residence condominium in Singapore and the Seasons Park residential development in Tianjin, China.

Since then, as mentioned in the previous article, the Singapore government’s cooling measures have brought negative impacts to private luxury condominium sellers who target upmarket consumers. The downward trend in revenue post-2014 was a result of declining demand in both the China and Singapore markets.

In the financial year of 2016, GuocoLand’s net profit soared 155.32% compared to that in 2015. However, it was the disposal of subsidiaries relating to the integrated mixed-use development in Beijing that lead to the sharp increase. The profit margin edged up to 55.52% , which is the highest number over 5 years, due to the greatly increased profit.

b. Financial and Cash Position
It is interesting to find that GuocoLand’s inventories reduced to half in 2016. Before 2016, GuocoLand held a stable balance of inventories worth around $4500m. For a property developer like GuocoLand, inventory is mainly comprised of development properties.
At the same time, GuocoLand’s cash and cash equivalents more than double, in concurrence with a sharp drop in loans and borrowings. Based on all these information, it is not difficult to surmise GuocoLand was selling their inventories in exchange of cash, which they used to pay back its debt.

For GuocoLand, cash and cash equivalents at the end of 2016 skyrocketed from $411.152m to $1429.038m, which was jointly contributed by the disposal of subsidiaries and the sales of inventories. Though the company held abundant cash, the method they gained it is not organic.

However, there were improvements in liquidity and solvency. Leverage ratio (Total debt / Total equity), which shows the degree of using debt as a financing source, kept decreasing during the past five years. Current ratio (current assets/ current liabilities), which indicates a firm’s ability to pay back short-term debt has increased in 2016.

c. Segment Performance

For 3Q-4Q 2016, Singapore is responsible for almost 90% of revenue (from progressive billings for condominiums and Guoco Tower). Guocoland’s revenue streams are hence incredibly sensitive to the Singapore residential market. While management has communicated their intention to diversify into the UK and Australian markets, Guocoland Ltd (SGX:F17) for now will essentially be a pure play into the Singapore residential housing market. Guocoland has land-banked for residential developments in Singapore (Martin Place) and China (Chongqing), sources of future revenue.




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