Singapore Property - Maybank Kim Eng Research 2016-01-13: Homes First, Before Office

Singapore Property - Maybank Kim Eng Research 2016-01-14: Homes First, Before Office Singapore Property WING TAI HLDGS LTD W05.SI  HO BEE LAND LIMITED H13.SI  CAPITALAND LIMITED C31.SI  OUE LIMITED LJ3.SI  CITY DEVELOPMENTS LIMITED C09.SI  SUNTEC REAL ESTATE INV TRUST T82U.SI  KEPPEL REIT K71U.SI  CAPITALAND COMMERCIAL TRUST C61U.SI 

Singapore Property - Homes First, Before Office 


Sector preference: residential over office 

  • Singapore’s residential market may bottom faster than its office market, in our view. 
  • Home prices have corrected for nine consecutive quarters; we believe further price falls this year could set the stage for a bottom. There is, moreover, upside potential if the government loosens policy measures sooner than later. 
  • Contrast this with office capital values, which have just crested and may trough much later. 
  • We remain Positive on developers, Neutral on office REITs. 
  • CityDev is our top sector pick. 


Residential bottom in 2017? 

  • While home price corrections have slowed down, we believe deteriorating economic conditions could push prices down by another 4- 6% in 2016. This could set the stage for a progressive loosening of policy measures in early 2017; developer stocks may start rallying in 2H16. 
  • We recommend stock positioning ahead of this sector catalyst. In our universe, Wing Tai (33%) and CityDev (26%) have the largest exposure to Singapore’s residential market and may be re-rated the most on any policy loosening. 
  • A worsening economic environment may just prompt the government to loosen faster. 

Too early to raise exposure to office 

  • We expect rising vacancy rates to depress office rents in the year ahead. 
  • While oversupply has been well-flagged, worsening demand may not have been fully priced in. This means that net absorptions could disappoint. 
  • We expect prime office rents to fall by another 7% in 2016 and reckon it too early to raise office exposure as the sector may only trough in 2018. 
  • A few developers under our coverage remain major landlords and could be affected to some extent by this weakness. Ho Bee (40%) and OUE (32%) have the largest Singapore office exposure among our developers, with OUE’s exposure concentrated in prime areas. 

POSITIVE on developers, NEUTRAL on office REITs 

  • We apply a new valuation methodology to property developers by varying our discount rates for their underlying assets as not all RNAV is created equal. We make no changes to our stock ratings but adjust our TPs by -16% to +6%. 
  • Our top pick is CityDev. CapitaLand, Wing Tai and Ho Bee are BUYs and OUE a HOLD. 
  • Despite persistent headwinds in the office space, we stay NEUTRAL on office REITs as our forecasts already build in rent falls. Furthermore, current valuations imply a 20% decline in capital values. 
  • We make no changes to ratings. Keppel REIT and CapitaLand Commercial Trust are HOLDs and Suntec REIT, a SELL. TP for CCT and Suntec remain unchanged, but is cut for Keppel REIT to factor in lower DPUs for recently issued perpetual securities.



Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-10-06
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.91 Down 2.25
BUY Maintain BUY 2.84 Down 2.90
BUY Maintain BUY 3.71 Down 3.88
HOLD Maintain HOLD 1.92 Down 2.04
BUY Maintain BUY 9.33 Same 10.64


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