Property Development & Inventory - CIMB Research 2017-11-03: Small Is Beautiful

Property Devt & Invt - CIMB Research 2017-11-03: Small Is Beautiful CHIP ENG SENG CORPORATION LTD C29.SI HIAP HOE LIMITED 5JK.SI ROXY-PACIFIC HOLDINGS LIMITED E8Z.SI TUAN SING HOLDINGS LIMITED T24.SI SING HOLDINGS LIMITED 5IC.SI HONG FOK CORPORATION LTD H30.SI

Property Devt & Invt - Small Is Beautiful

  • The outperformance of property stocks could continue in tandem with the physical market recovery, in our view.
  • Small and mid-cap property stocks have strong underlying net asset values and are trading at 44-62% discounts to their marked-to-market asset values.
  • Roxy Pacific and Chip Eng Seng have been deepening their exposures to the Singapore residential sector since 2H16. This will likely broaden their development earnings visibility when the projects are launched.
  • Tuan Sing Holdings has announced plans to create more value from existing assets through AEIs and redevelopment opportunities.



Strong performance of property stocks ...

  • The run-up in the share prices of property stocks had prompted us to broaden our look to include both the mid- and smaller-cap property companies, in search for value. 
  • Based on our market-cap weighted index below, the micro-cap property stocks i.e. those at < S$0.4bn had done extremely well with a 68% run-up since the beginning of 2017. The value of large caps had also risen, by 31% since early-2017. The small and mid-cap developers have lagged a little behind over this period.


…in tandem with anticipated physical property market recovery 

  • Share prices of property companies have moved in tandem with the anticipated recovery in the physical property market in Singapore. The URA property price index displayed its first uptick in 3Q17, after a 15-quarter decline. 
  • In addition, the Singapore office leasing market, particularly those in the CBD, has also demonstrated green shoots of recovery. This should likely be supportive of asset values, and ultimately share prices.


Assessed RNAVs based on comparison to physical market values 

  • While the RNAVs of larger-cap property developers have been well documented, the values of other property stocks have not been as well assessed. We attempt to revalue the asset backing of the lesser-covered property companies, by comparing their property portfolios and assets values with the latest market transacted prices.


Featuring six small-cap developers 

  • In this report, we look at six smaller-cap property companies, namely Hong Fok Corp (HFC), Chip Eng Seng (CHIP), Hiap Hoe (HIAP), Roxy Pacific Holdings (ROXY), Sing Holdings (SING) and Tuan Sing Holdings (TSH). These companies have predominant exposure across the various property and hospitality segments in Singapore but have also diversified into the Asia-Pacific region. 
  • In terms of valuations, all these companies are trading at 44-62% discount to their revalued asset backing, with net debt to equity ratio ranging between 0.5x-1.4x.
  • Roxy Pacific Holdings and Chip Eng Seng increasing their Singapore residential exposures; TSH is unlocking value from existing properties We note that Roxy Pacific Holdings and Chip Eng Seng have been actively replenishing their Singapore residential landholdings since 2H16 while building recurrent income overseas.
  • Meanwhile, Tuan Sing Holdings has announced that it is looking to optimize the value of the Hyatt Regency Perth via planned asset enhancement initiatives as well as potentially redeveloping the recently-acquired Sime Darby Centre.


Report








LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-11-03
CIMB Research SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998.000 Same 99998.000
NOT RATED Maintain NOT RATED 99998.000 Same 99998.000



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