Maybank Kim Eng Research 2015-07-01 Real Estate Sector (Part 2): Developers - BUY Wing Tai (TP 2.37), Ho Bee Land (TP 2.75), City Developments (TP 11.40), HOLD CapitaLand (TP3.85), OUE (TP2.35)

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Investment Thesis - Developers

Wing Tai - BUY (TP 2.37) 

• Best proxy for potential lifting of cooling measures for foreigners. Residential projects account for 60% of asset value. 
• Even if cooling measures are not rolled back, company may consider privatisation, to avoid paying QC penalties. 
• Holds 33.5% of Wing Tai Properties that is conservatively valued at market price. Only implies 0.3x P/BV despite solid fundamentals. 
• Trading at steep discount to RNAV vs 19% in recent privatisation offers. 
• Valuation: 35% discount to RNAV of SGD3.65, consistent with our discount for Ho Bee. Conservative compared to its 10-year average discount of 31%. 
• Risks to TP: 
  1. lower-than-expected residential ASPs; 
  2. high-end properties remain in doldrums. 
• Catalysts: 
  1. rebound in high-end sentiment; 
  2. privatisation to avoid QC penalties. 

Ho Bee Land - BUY (TP 2.75)

• Low-risk exposure to high end. 
• May benefit from rebound in high-end sentiment. Alternatively, unsold units can be leased out as it faces no time pressure to sell due to QC exemptions. 
• Income-producing offices at more than 60% of its asset value. Steep discount to RNAV unwarranted. 
• Valuation: 35% discount to RNAV of SGD4.23, similar to our discount for Wing Tai. Close to its 10-year average discount of 37%. 
• Risks to TP: 
  1. office asset devaluation; 
  2. sentiment on Sentosa properties stays lethargic. 
• Catalysts: 
  1. rebound in high-end sentiment; 
  2. sale of investment assets. 

City Development - BUY (TP 11.40)

• New platforms for sourcing funds may unlock portfolio value, providing upside to NAV. 
• Ample inventories to capitalise on any upturn in high-end sentiment. 
• Diversification to other markets in recent years could underpin medium-term growth. 
• Valuation: 15% discount to RNAV of SGD13.41, similar to our discount for CapitaLand. Also 0.5SD below its 10-year average. 
• Risks to TP: 
  1. lower-than-expected residential ASPs; 
  2. market value of M&C; 
  3. decline in asset values for investment properties. 
• Catalyst: unlock asset value with new financial platforms.

CapitaLand - HOLD (TP3.85)

• Offers stability with diversity. Assets spread across Singapore/China. 
• 75% of assets produce recurring income. 
• However, no stock catalysts. Furthermore, we expect retail headwinds in Singapore. We have a SELL on CMT. 
• ROE target of 8-12% a tall order. 
• Valuation: 15% discount to RNAV of SGD4.53, similar to our discount for City Developments. At 0.5SD below its 10-year average. 
• Risks to TP: 
1. lower-than-expected residential ASPs; 
2. decline in asset values for investment properties. 
• Catalyst: rebound in buying sentiment in Singapore and China.

OUE - HOLD (TP2.35)

• Good value at wide discount to RNAV. 
• 84% unsold Twin Peaks may benefit from turn in high-end sentiment. Not a privatisation candidate given Indonesian parentage. Hence, subject to cumulative QC penalties of SGD251m in three years after deadline. 
• But with more than 80% of GAV backed by stable non-trading portfolio, we see strong valuation support. 
• Valuation: 40% discount to RNAV of SGD3.94, larger discount than for Wing Tai and Ho Bee due to its riskier profile. Also larger than its 10-year average discount of 29%. 
• Risks to TP: 
  1. decline in asset values for office portfolio; 
  2. lower-than-expected residential ASPs. 
• Catalysts: 
  1. rebound in high-end sentiment; 
  2. divestment of assets at favourable prices to REITs.

(Derrick Heng, CFA; Joshua Tan)

Source: http://www.maybank-ke.com.sg/