Singapore Developers - DBS Research 2020-01-02: Asset Rejuvenation At Work

Singapore Property Developers - DBS Research | SGinvestors.io UOL GROUP LIMITED (SGX:U14) CAPITALAND LIMITED (SGX:C31) CITY DEVELOPMENTS LIMITED (SGX:C09)

Singapore Developers - Asset Rejuvenation At Work

  • Developers to deliver higher returns and NAV uplift on recent M&A activities.
  • Singapore residential market volumes may be boosted by the upgrader households.
  • Developers’ to actively pursue asset recycling.
  • Prefer diversified plays like CAPITALAND (SGX:C31) and CITY DEVELOPMENTS (SGX:C09).



Developers to deliver higher returns on the back of robust M&A activities.

  • Property developers offer good value at 0.8x P/NAV (-1 standard deviation) in an environment of high valuations. With the property market expected to remain resilient and developers under our coverage have been actively clearing inventories in 2019, we see dissipating risks to their exposure to Singapore (SG) residential market which we estimate to drop to < 15% of RNAV based on unsold inventories. In addition, most developers went on a M&A spree in 2019, with more than c.S$17bn of deals inked in 2019.
  • These acquisitions would shore up earnings and further enhance geographical diversity, and in some cases add incremental recurring income. With these M&A deals contributing from 2020 onwards, we anticipate an improvement in ROEs while asset recycling activities will drive NAV upside. We have raised our TPs to reflect a more positive outlook through a reduction in RNAV discounts, implying a P/NAV target of 1.07x (+0.5 SD). See CapitaLand Target Price; City Developments Target Price; UOL Group Target Price.
  • Our picks are CAPITALAND and CITY DEVELOPMENTS.


Singapore residential market on a steady footing but government intervention a risk if prices rises to fast.

  • Transaction volumes have done well in 2019, hitting close to 10k units, ahead of expectations and we expect volumes to remain stable at best in 2020. While supply of c.39k unsold homes is high, there is a larger proportion of homes within the Rest of Central Region (RCR) and Core Central Region (CCR) regions where overall investment quantum is higher.
  • With buyer affordability remaining restrained, we expect sell-through rates to remain slow. That said, we watch the actions of upgrader households, as they would benefit from the recent policy measures to improve household affordability. If HDB resale prices strengthen, we could see more activity than anticipated in 2020, presenting upside to our estimates. The Property Price Index (PPI) should remain on an uptrend in 2020 but by a more modest 1%- 2% (vs c.2.5%-3.0% in 2019).


Asset reconstitution strategy at work; where will developers look to next?

  • We remain excited about asset recycling plans that could be in store for developers looking to unlock capital from recent M&A activities and will likely tap their REITs to recapitalize their balance sheets. We believe that a portion of the capital could be redeployed into value-add opportunities (CAPITALAND – Science Park redevelopment, Vietnam, India), CITY DEVELOPMENTS (M&C) and UOL GROUP (SGX:U14) (Marina Centre Holdings redevelopment) to anchor longer term NAV upside and be re-rating catalysts.
  • See attached 31-page PDF report for complete analysis on Singapore Property Developers:
    • Key trends in 2020;
    • Peer comparison and valuation ranges;
    • How developers fared in 2019;
    • Developers' strategies - Land-banking for the future;
    • Developer charts and more...





Derek TAN DBS Group Research | Rachel TAN DBS Research | https://www.dbsvickers.com/ 2020-01-02
SGX Stock Analyst Report BUY MAINTAIN BUY 9.500 SAME 9.500
BUY MAINTAIN BUY 4.500 SAME 4.500
BUY MAINTAIN BUY 13.000 SAME 13.000



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