FY17 results were in line with guidance and expectations. The Abian project finance facility has been paid out and gearing is likely to have fallen from 60.3% to around 40%
Source: Company reports, FIIG Securities
Main points
- NPAT increased 12% to $35.3m in FY17 meeting previous company guidance of $35m (FIIG forecast $33.5m)
- The group reported 524 sales and 597 settlements (FY16: 426 sales and 443 settlements)
- Management indicated that contracts unable to be fulfilled continue to be insignificant and represent less than 2% of revenue, with deposits forfeited and resales being achieved at the prior contract value or above
- Debt to equity gearing increased from 42% at 31 December 2016 to 60.3% FYE17 (FYE16: 57.1%) as the Abian project completed (higher leverage is utilised to finance multistorey developments, while the land and housing segment is typically leveraged at approximately 35%)
- Cash received from Abian settlements, including those achieved post balance date has repaid the project finance facility of $132m. The group’s debt levels have reduced by $163m from peak utilisation during the financial year. Abian settlements will continue through 1H18. Once complete, gearing is estimated to be around 40%
- Settlement receivables are significantly higher at $74.9m (FYE16: $14.9m) due to the revenue accrual for settlements of various projects delivered around year end such as Abian, Magnoli Residences and Carré Residences
- The group has balance sheet capacity of $14.6m in cash and $109.8m in undrawn working capital lines
- The group’s equity friendly activities continue. Sunland’s share buyback program acquired shares totalling $13.3m during FY17. It is likely that the buybacks will continue while the company’s market capitalisation offers a large discount to tangible assets (current market cap: $278.9m vs NTA: $363.8m). Directors have also declared a special dividend of 2 cents per share on the back of the Abian completion
- While Abian was successful, high rise projects typically present higher risks including higher gearing. While Sunland is currently constructing a much smaller multi-story development (Marina Concourse, Royal Pines Gold Coast is underway with an estimated end value of $85.5m. Compared to Abian’s $240m), there are no other high rise projects planned during the life of the November 2020 bond. The group’s planned high rise projects including 272 Hedges Avenue in Mermaid Beach, Greenmount Residences in Coolangatta, One Marine Parade in Labrador and Grace on Coronation in Brisbane are scheduled from FY21 and beyond
- At FYE17, Sunland’s development pipeline comprised 5,601 land, housing and multistorey products with a total end value of $3.9bn. Sunland continued to replenish its portfolio during the year, with new site acquisitions totalling $65m adding 579 allotments to the portfolio with an estimated end value of $689m
Relative value
Source: FIIG Securities, Bloomberg. Pricing as at 30 August 2017
We consider Sunland’s November 2020 bond offers fair value. We note that with the completion of the Abian high rise, gearing is expected to fall from 60.3% to around a 40% level for the remaining life of the bond. We consider Sunland’s balance sheet to be stronger and its portfolio more diverse than other HY AUD property industry peers such as Stockwell and Impact Group.
Source: FIIG Securities, Bloomberg. Pricing as at 30 August 2017