Singapore Property - OCBC Research 2015-09-28: Record share repurchases in 3Q15

Singapore Property - OCBC Research 2015-09-28: Record share repurchases in 3Q15 WING TAI HLDGS LTD W05.SI  GLOBAL LOGISTIC PROP LIMITED MC0.SI 

Singapore Property: Record share repurchases in 3Q15 

 Developers’ PB at 1 sd below LT average
 3Q15 buybacks highest since 2013
 Effective use of capital for GLP and WingTai

Developer price-to-book multiple now ~1 std below 9Y average 

  • The share prices of property developers, which had generally suffered lacklustre performances over the last year due to a slowing housing market, saw another leg down in 3Q15 alongside increased volatility in the general market on heightened fears of a Chinese hard landing and uncertainty over a Fed rate hike. 
  • Over 2014 to date, the Straits Times Real Estate Developer Index (FSTREH) fell 4.9% while its price-to-book ratio dipped to 68%, which is one standard deviation below its nine-year average. 

Company buyback by developers in 3Q15 is highest since 2013 

  • We note that several real estate developers have taken this opportunity to buy back their undervalued shares. By our estimates, developers on the SGX have spent S$242m in 3Q15 to repurchase shares; this is the highest quarterly figure seen since 2013 and more than eight times the previous high in 4Q13. 
  • In our view, if a company’s balance sheet is healthy and the opportunity cost of capital not excessive, buying back undervalued shares can be an accretive move for shareholders. 
  • For developers, the buyback accretion can be particularly meaningful given that situations of share price undervaluation (based on underlying real estate assets such as land, homes, malls and offices with relatively firm liquidation values) are typically subject to less vagaries versus other businesses typically valued on a price-to-earnings multiple or book value underpinned by capital goods and inventory. 

Share repurchases represent effective use of capital for GLP and Wing Tai 

  • We highlight that GLP begun repurchasing its shares on 3 Aug 2015 and have since went into the market 35 times to purchase approximately 96m shares worth S$213m. With its firm balance sheet and significant capital headroom, we believe GLP repurchasing its current shares trading at a 34% discount to its RNAV and 15% discount to book represents an effective use of capital. 
  • Wing Tai similarly entered the market four times in 3Q15 to repurchase S$1.0m of shares after a recent downturn in its share price. We see solid long term value in its current share price at a 58% discount to book and 57% discount to RNAV, and the company’s share buybacks are significantly accretive to shareholders, in our view. 
  • We will view any further share repurchases by both companies near current levels to be firm positives. 
  • Maintain BUY on GLP [FV: S$3.07] and Wing Tai [FV: S$2.58]. 

Eli Lee OCBC Securities | 2015-09-28
OCBC Securities Analyst Report BUY Maintain BUY 2.58 Same 2.58
BUY Maintain BUY 3.07 Same 3.07