Singapore Property - Maybank Kim Eng Research 2016-03-09: Value Unlocking Deals could Narrow RNAV Gap

Singapore Property - Maybank Kim Eng Research 2016-03-09: Value Unlocking Deals could Narrow RNAV Gap Singapore Property WING TAI HLDGS LTD W05.SI  HO BEE LAND LIMITED H13.SI  CAPITALAND LIMITED C31.SI  CITY DEVELOPMENTS LIMITED C09.SI 

Singapore Property - Value Unlocking Deals could Narrow RNAV Gap 


Stay POSITIVE on Developers; CityDev Still Top Pick 

  • Recent results threw up the following: 
    1. impairment of residential and hospitality assets; 
    2. resilient capital values for commercial assets and 
    3. strong China home sales. 
  • We suspect there isn’t enough pain in Singapore’s residential market yet and believe cooling measures may only be lifted in early 2017. 
  • Meanwhile, we expect the market to focus on deals that could unlock property values and narrow discounts to physical assets. 
  • Stay invested in developers as valuations remain attractive. CityDev as our top pick. 


Three Takeaways on Stress Points & Strengths 


Impairment & provisions. 

  • Major property developers booked net impairment charges of SGD435m in total for 2015. While most do not break out by project, management commentaries suggest that these charges were mostly for hospitality and residential assets – the stress points in this market. 
  • While negative, it also implies more conservative book value post-impairments. 

Resilient capital values for commercial assets. 

  • Latest valuations for developers’ office and retail properties remain resilient with cap rates used by valuers remaining low. However, with normalising interest rates and weak market fundamentals, we see the potential for an uptick in cap rates. 
  • While this could lead to markdowns in property values on their balance sheets, our RNAV estimates already build in normalised cap rates of 4-4.25% for offices and 5.5-5.75% for retail properties. 

Strong China home sales. 

  • Major developers with exposure to China reported stronger home sales on the back of favourable government policies. This should translate into better earnings in 2016. 

Eyes on Deals that Could Unlock Property Values 

  • With the sector trading at material discounts to physical assets, we believe that the market may focus on deals that could unlock property values. 
  • Sales of mature commercial properties are the low-hanging fruits, though we also see opportunities in the residential market. 
  • Time pressure from looming QC and ABSD deadlines could motivate more developers to pursue bulk sales or structure deals for high-end homes, in our view. Bonus if Cooling Measures Are Tweaked Earlier Despite repeated calls from developers, the government still thinks it premature to lift cooling measures. 
  • We think there may not be enough pain in the market yet and maintain our call for a review in early 2017. Any earlier tweaks will be a bonus. 
  • Meanwhile, we expect the market to focus on transactions that could unlock property values and narrow discounts to physical assets. We update our physical-market forecasts to incorporate the latest data points for the residential and office markets. 



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