Real Estate - RHB Invest 2015-12-05: All In The Price

CAPITALAND LIMITED C31.SI CITY DEVELOPMENTS LIMITED C09.SI SINGHAIYI GROUP LTD 5H0.SI WING TAI HLDGS LTD W05.SI HO BEE LAND LIMITED H13.SI

Real Estate - All In The Price

Notwithstanding another tough year ahead for the residential market, we find good reasons to be optimistic on the sector.
Most developers are currently trading at trough valuations, despite having strong balance sheets and limited unsold stock.
Downward adjustment in land prices would enable the stronger players to replenish landbank opportunistically and begin a new earnings cycle.
Our top picks include Capitaland and City Developments among the large caps.
We also favour Oxley Holdings, Ho Bee Land, Wing Tai and Singhaiyi.

New home sales in 9M15 slumped to 5,555 units, less than half that of 2012-13, representing the lowest point since 2008. We expect 2015 new home sales to come in at c.7,500.
On the price front, private home prices have declined 3% YTD and 8% from the peak in 3Q13. Given the ample supply in the pipeline and the weight of policy measures, we project another 6-8% decline in property prices in 2016.
Developers with unsold inventory facing looming deadlines of qualifying certificate (QC) charges/ additional buyer's stamp duty (ABSD) fees are likely to trim prices to clear stock.

Against a backdrop of declining price/volumes and lack of speculative demand in the system, we expect the government to review and fine-tune the array of measures that have been introduced since 2009.
Measures that could be reviewed include tweaking downwards stamp duties for buyers and sellers and providing reprieve to developers from QC charges/ABSD penalties on unsold stock. These adjustments, combined with more attractive home prices, could drive transaction volumes and provide a catalyst for the sector.

Developers under our coverage are trading at RNAV/NAV discount of 30-60%. Most are trading at trough valuations and have attractive risk-rewards profiles, given a mix of strong balance sheets, robust pre-sales numbers, a good proportion of recurring income and the flexibility to allocate capital to overseas markets.

Among large caps, our top picks are City Developments and Capitaland, which are both broadly diversified across markets/sectors and have established platforms to recycle capital. In the small/mid cap arena, we like Wing Tai for its deep discount to a solid asset base and as a proxy to the recovery in the high-end segment.
We also like Oxley for its execution track record, with earnings underpinned by a SGD3.3bn sales backlog.
Ho Bee Land is well-positioned with its portfolio of prime, income generating office assets and a strong balance sheet to boot.

We identify
1. a protracted decline in prices/volumes and
2. intense competition for land resulting in reduced profitability for the sector
as potential downside risks.

Meanwhile, we think that a faster than expected lifting of cooling measure could potentially provide an upside to the sector.

Goh Han Peng RHB Invest | Ivan Looi RHB Invest | http://www.rhbinvest.com.sg/ 2015-12-02

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