GuocoLand

GuocoLand: trading halt to be lifted 9am this morning. Company takes opportunity to conduct rights issue on good FYJun10 results…

GuocoL returned to the black with net profit to sh/h of $134m vs net loss of $70m last yr. Bottom-line improvement mainly aided by absence of revaluation loss on invmt properties ($81m), and net FX loss ($34m). Gross profit also doubled to $71m, on better margins and higher revenue (+43% yoy to $733m), driven by strong sales in China and Singapore. Dividend of 8cts, translates to 3.6% yield, up from 5cts last yr…

While mgt’s comments on outlook was positive, we note the following risks: i) Recall sale of Shanghai office block to a Chinese party for RMB 1bn last Nov. The buyer is now asking for deferral of payment of remaining 90% of sale price till end-2011. This is likely to weigh on GuocoL’s cash flow needs. ii) legal dispute regarding its 90% interest in the Dongzhimen project in Beijing is still pending. iii) terminated the proposed JV agreement to develop a mall in Vietnam...

Separately, GuocoL proposed 1-for-3 rights issue at $1.80/sh, to raise ~$532m. Issue price is 16% discount to last close at $2.14. Proceeds to be used to reduce debt and strengthen balance sheet, fund potential M&A / growth, and for general working capital. Gearing expected to improve to 0.6x from 1x.
Stock trades at 0.9x PB, 13.2x PE. JPM keeps as Overweight with $2.45 target.