Sunland Group Limited

Company Overview: Sunland Group Limited (ASX: SDG) is one of Australia’s leading real estate groups, mainly involved in residential property investment, development, and construction activities. The company has two core business segments, namely (1) Residential Housing and Urban Development and (2) “Multi-Storey” developments. The company ensures delivery of key projects by specialist in-house teams with an extensive understanding of land acquisition and project feasibility analysis.

SDG Details

SDG Rides on Adequate Return of Capital to Shareholders & Residential Housing Developments Plans: SDG has a strong track record in capital and risk management, providing service excellence to tenants and delivering superior risk-adjusted returns for investors. The company’s development pipeline is created to provide future revenue streams while adding further depth and flexibility to its customers' spaces. Over the last two years, the company has witnessed significant improvement in its bottom line.

Key Discoveries from FY21 Results:

• Rise in Revenues: In FY21, the company’s revenues from the sales of properties soared from $159.8 million reported in FY20 to $274.35 million. The growth was aided by the sale of numerous assets (Mariners Cove, Lakeview Childcare (QLD), Archer St (QLD), which were completed during the period, thus contributing a total of $40.1 million in revenue and $13.6 million in profit after tax.
• Increase in Statutory NPAT: Net profit after tax (statutory) stood at $24.9 million in FY21, up from $2.4 million reported in FY20. Earnings per share for the period came in at 18.7 cents against 1.8 cents reported in FY20. The company remains on track by buoyant market conditions and completion of numerous projects settlement primarily located in Southeast Queensland.
• Exceeding Targeted Development Margin: The company attained margin of 24% from its various residential development projects, surpassing the target of 20%. In the Multi-Storey segment, SDG witnessed a return of 28%, enhanced by the sale of Mariners Cove and a positive progress return for Magnoli.
• Achieved Higher Sales in FY21: In FY21, the company saw a massive 596 sales volume for a value of $436.9 million, compared to 357 sales volumes in FY20, with a value of $236.9 million. The growth was achieved as the company remained focused on first home buyers and also the downsizer market.
• Enhancing Shareholder’s Value: The company has a decent track record of rewarding shareholders through dividends. Supported by its decent net cash position, strong liquidity, and improved cash flow in FY21, SDG declared a final fully franked dividend of 4 cents per share. A special dividend of 16 cents per share brought the full-year dividend to 20 cents.
• Growth in Cash Receipts & Net Cash Inflows: The company recorded $316.09 million cash receipts from operations during FY21 vs $167.48 million in FY20. SDG generated $70.79 million net cash inflows from operating activities in FY21 compared to $77.51 million net cash outflows last year, owing to property settlements.

The below picture depicts a continuous growth trajectory in SDG’s track record of paying regular dividends. As can be seen in the following image, the company’s dividends have been increasing since FY17 and, thus, it can be said that SDG has been focusing on delivering respectable returns to its shareholders.

Dividend Summary; Analysis by Kalkine Group

Key Metrics: For FY21, SDG reported an EBITDA margin of 14.9%, higher than the year-ago figure of 8.9%. In FY21, the company recorded ROE of 7.6% compared to the year-ago figure of 0.7% 

Profitability Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 65.19% of the total shareholdings, while the top 4 constitutes the maximum holding. Abedian (Soheil) held the maximum number of shares with a percentage holding of 37.33%, followed by Abedian (Sahba) holding 6.88%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:

• The company is exposed to the threats of the COVID-19 Pandemic, as it could impact the operating environment and the company’s tenant base.
• The company is exposed to stiff rivalry from competitors developing similar product lines and services.
• The company is also exposed to the risks related to unexpected changes in equity and debt
• SDG is exposed to performance risks, mainly related to its ability to meet market guidance, deliver superior risk-adjusted performance relative to industry benchmarks, and complete project developments in line with expectations.
• Further, foreign currency fluctuation risks, low demand and prices for property, and changes in government regulations might hinder the company’s business model.

Outlook: The company is focused on delivering stable and consistent performance and will continue to expand its integrated housing strategy, enabling the company to mitigate the risk through staged delivery. The company also strives to maintain a decent financial position to ensure sufficient availability of capital to complete projects and achieve the desired results. Its strategy is to deliver superior risk-adjusted returns for investors, with the purpose of converting assets to cash, payback all liabilities, and return net asset value to shareholders, subject to market conditions. SDG will hold its AGM (Annual General Meeting) on 24 November 2021.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of the company went up by ~7.72% in the past three months. Currently, the stock is trading slightly above the average of its 52-week high and low levels of $2.93 and $1.325, respectively. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount as compared to its peers, considering the impact from COVID-19 outbreak, deferred government programs, delays in the deal closures, foreign currency fluctuation risks, changes in government regulations, etc. For the purpose of valuation, peers such as Charter Hall Group (ASX: CHC), Mirvac Group (ASX: MGR), Goodman Group (ASX: GMG) have been considered. Considering rise in cash flow from operations, higher revenue base, positive outlook, projects and projects in pipeline developments in FY22, indicative upside in valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $2.46, as on 19 October 2021.

SDG Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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