Forex and mark-to-market derivative losses continued to offset what were already thin operating numbers from Guocoland, leading to a 97% plunge in net profit yoy to S$0.9m. With the USD having appreciated yet another c.4% YTD, the forex knife looks set to potentially pare away at another set of earnings in the coming quarter. Maintain Fully Valued, with TP of S$0.74.

2Q09 Earnings Plunge. It was another dismal quarter for Guocoland as its net profit plunged 97% yoy to S$0.9m on the back of a 55% drop in revenue to S$94.6m. These numbers failed to reverse the net loss reported in 1Q09, bringing its net loss position to S$2.0m at the half-way mark.

Forex Knife Cuts Deep. Aside from being attributed to lower sales for its development projects in Singapore and China, its main offsetting items were unrealized mark-to-market losses on derivative financial instruments (2Q: S$4.9m loss; 1H: S$7.6m loss) and unrealized forex losses (2Q: S$2.9m loss; 1H: S$22.1m). The latter is due to translation loss on its USD300m bank loans, deployed to fund its investments in China. As of end-Dec 08, the USD had appreciated c.5% against the SGD compared to end-Jun 08. YTD, it has appreciated a further c.4%, suggesting that translation losses could continue to undermine earnings in the current quarter.

Maintain Fully Valued, TP S$0.74. With sales slow in its main operating markets of Singapore and China, the group has not scheduled any new launches, indicating that it will be difficult to anticipate the turnaround. With the Dongzhimen legal limbo approaching its first anniversary and showing no sign of a resolution, the stock is likely to continue underperforming the market. We maintain our Fully Valued call, TP S$0.74 based on a 60% discount to RNAV of S$1.85 (prev S$2.02).