Singapore Property - Maybank Kim Eng 2017-10-06: The Tide Has Turned

Singapore Property - Maybank Kim Eng 2017-10-06: The Tide Has Turned Singapore Property Market URA Property Price Index Property Developers UOL GROUP LIMITED U14.SI CITY DEVELOPMENTS LIMITED C09.SI GUOCOLAND LIMITED F17.SI HO BEE LAND LIMITED H13.SI CAPITALAND LIMITED C31.SI

Singapore Property - The Tide Has Turned

Prices have turned; we trim RNAV discounts 

  • We refresh our models for recent land acquisitions. With their latest enbloc deals on the east coast, UOL and CityDev are now even stronger proxies for an impending rebound in Singapore’s residential market, in our view. While GuocoLand has not announced details of its latest Beach Road project, we believe a mixed development with office, residential and retail components is likely and update our models accordingly. 
  • The recent uptick in the URA Property Price Index (PPI) has marked a turning point in Singapore’s property market and we expect RNAV discounts for Singapore proxies to narrow. We raise Target Prices accordingly and reiterate UOL as our top pick, along with BUYs for CityDev and GuocoLand
  • Risks from a sharp fall in property prices and surprise policy tightening.

UOL & CityDev redeveloping the east coast! 

  • UOL and CityDev recently announced successful tenders for the redevelopment of Nanak Mansions and Amber Park. 
  • Located in eastern Singapore, these two properties are close to desirable amenities, such as Parkway Parade and East Coast Park, and offer good connectivity to upcoming MRT stations along the Thomson-East Coast Line due to open in 2023. 
  • We believe prices paid by the two developers are reasonable and imply a breakeven of around SGD2,000 psf. Hence, these projects should be reasonably profitable, especially if ASPs continue to climb from today’s SGD1,900-2,100 psf.

Incorporating Beach Road for GuocoLand 

  • We also update our models for GuocoLand’s latest acquisition of the Beach Road site
  • While project details have not been announced, we believe a mixed development with office, residential and retail components is likely and we update our models accordingly. While the market is concerned that this deal could lead to equity fund-raising by GuocoLand, our analysis suggests that its net gearing should remain comfortable at 1.0x and cash calls are unlikely. 
  • We reiterate our view that establishing a REIT platform makes even more strategic sense now, as it would provide an avenue for capital recycling in new commercial developments like this one.

Home prices in Singapore have turned 

  • The 0.5% QoQ increase in the 3Q17 URA Property Price Index (PPI) flash estimates has marked a turning in Singapore’s property market. Consequently, we remove our RNAV discount for sector bellwether, CityDev, in setting our Target Price. This is in line with its trading history during the initial stages of an upcycle, as in 2010. 
  • We believe rising property prices and acquisitions of fresh development sites could lead to further RNAV upgrades in the year ahead. 
  • In the same vein, we apply smaller RNAV discounts for other Singapore proxies, UOL and GuocoLand.

Related Reports

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-10-06
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