Strong results aided by revaluation gain. Soilbuild Group reported a good set of 1Q09 results that was partly aided by revaluation gains. Revenue jumped 104.3% YoY to S$64.7m, with revenue coming from its 4 residential projects - Espa (TOP in Jan), Leonie Parc View, Montebleu and Centrio, development of Tuas Lot and rental income from newly completed projects. In particular, maiden contributions from the leasing of Tuas Connection and Penjuru Logistics Hub (PLH) had drove Soilbuild's rental income higher by 38% YoY in 1Q09. A one-off revaluation gain of S$6.5m was also recognized from the revaluation of PLH which was completed in Jan. As a result, PATMI jumped 207.5% YoY to S$19.1m. Excluding the revaluation gain, underlying PATMI still remains strong, growing by an estimated 90.3% YoY.

Higher NAV reduces gearing level. Debt level remains stable at the end of 1Q09, standing at S$410.1m (end FY08: S$406.7m). However, as NAV increased by 7.5% QoQ to S$0.99 per share at the end of 1Q09, Soilbuild's net gearing level continued to decline, falling from 1.9x to 1.7x. While revaluation gains had been instrumental in driving Soilbuild's NAV higher, bulk of the revaluation gain had been derived from the value-add that Soilbuild provided from the development of the properties, rather than from change in market value of the properties. As such, we believe that Soilbuild's NAV still remains defensive in light of the weak property market.

New project achieved encouraging take-up. For the year to date, Soilbuild launched 1 new residential project - The Mezzo, which is a 127 residential units and commercial development project located at Balestier Road. Although, average selling price of ~S$900 psf fell below our estimated S$1,000 psf for the project but take-up rate for the project has so far been encouraging. According to URA's March data, out of the 20 units launched in March, 17 units were sold, translating to a take-up rate of 85%. For Soilbuild's remaining projects - Heritage 9 and Meier Suites, the design development for these 2 projects have already been completed.

Downgrading to HOLD on valuation grounds. Our RNAV estimate has now been lowered to S$1.55 per share (previously S$1.58), after lowering our selling price assumption for The Mezzo. Maintaining a 50% discount to RNAV, our fair value estimate has now been lowered to S$0.77 (previously S$0.79). While current share price still implies an upside potential of 24.8%, we are now downgrading Soilbuild to HOLD, in line with our rating policy for small-cap stocks.