Posts Tagged ‘OUE’

Property: What weed are these people smoking?

In Property on 22/08/2011 at 2:05 pm

I am amazed that any broker can call the Singapore real estate sector “Overweight”. But RBS did it on 16 August 2011

The valuation gap between developer stocks and physical properties widened over the past eight months. We expect it to narrow as home sales remain robust. Strong household and developer balance sheets should support prices and cooling measures may prove ineffective in quelling real demand. We upgrade our view on the sector to ‘overweight’ from ‘neutral’.

Developer stocks’ premium to NAV narrowed to just 4 per cent from 33 per cent in January, despite robust primary home sales of 11,197 units (up 13 per cent year on year) in the first seven months of 2011 and a 4.3 per cent half-on-half increase in home prices in H1 2011. The sector also underperformed the STI by 11 percentage points in the last eight months. Policy risks seem as low now in view of heightened global uncertainty. We think any policies to cool the market would prove ineffective as we believe there is virtually no speculation now. We expect mass-market homes to continue to be undersupplied in 2012 to 2013.

Growth in total stock averages 2.3 per cent a year from 2011-12, below the long-term average of 3 per cent, while occupancy rate is at 98 per cent. Hence, we expect the healthy churn of mass properties to persist. We stress-tested the household balance sheet and found that a 30 per cent drop in home prices would bring the debt-to-asset ratio to 18.6 per cent, slightly higher than the long-term average of 18 per cent but below the high of 21 per cent in the 1997 and 2001 booms.

Gearing of larger developers is low at 34 per cent vs 41 per cent during the pre-crisis level of 2008 while that of smaller players halved to 103 per cent. Given their low land bank, developers will not cut prices even if there is a recession, in our view.

RBS expects the economy to grow 6 per cent in 2010 and 5 per cent in 2012. We expect an equilibrium in the office sector, in the light of higher visibility of supply and likely slower demand. Hence, we moderate our office rental growth assumptions to 5 per cent in both 2011 and 2012.

Overall, retail rents may soften in view of an oversupply but quality malls owned by seasoned operators should continue to do well. We like hotels on a structural growth story in Singapore tourism. Capital values of commercial assets should also hold up in view of persistently low rates.

We are most positive on City Developments, which we believe could benefit from a lifting of policy risks and continued strength in the residential market. Hence, we upgrade the stock from a ‘hold’ to ‘buy’, for its large exposure to the residential sector which accounts for 39 per cent of its RNAV.

We maintain our ‘buy’ ratings on Keppel Land, OUE and UOL as these commercial stocks look undervalued, trading at 30 to 50 per cent discount to RNAV. We maintain our ‘hold’ rating on CapitaLand as we believe that the stock may lag in stock price performance in view of its complex shareholding structure.


Residential property: Unconvincing contrarian call

In Property on 22/12/2010 at 5:25 am

Brokers’ analysts are like lemmings, they move in herds. So it is nice to see Credit Suisse is bullish¬†on Singapore’s residential property market when other brokers e.g. Nomura and CIMB are telling investors to give the sector a miss; and DBS and OCBC barely mention the sector. Sadly it is unconvincing though the call to buy CityDev makes sense in itself.

In a report last week Credit Suisse said that it expects home prices here to increase by 15% this year, and by another 5% in 2011 and 2012 each. Not much to peg bullish hopes on, I must say.

“The low interest rate environment, historical high rate of GDP growth as well as continued population growth should propel growth in the Singapore residential property market”. Err what abt less FTs being allowed in?

There were ¬†risks such as capital inflow controls (Huh? What are they smoking or drinking at the X’mas party?) or more anti-speculation measures from the government.

But the average valuation of Singapore property stocks is still below the historical average, and the residential sector is “reaching the peak with decelerating growth momentum”. Now isn’t the latter a gd reason to avoid the sector?

Credit Suisse has an “outperform” on CityDev, target price of t $17.16.

“While … 37 per cent of its RNAV … is in residential, the landbank had been mostly acquired at low costs, and we estimate 56 per cent is in the luxury sector, which has lagged the mass market segments,” Credit Suisse said. Sounds a gd reason.

It also has “outperform” on OUE, target price of $4.20.

BTW CIMB has “underperform” on CityDev, but likes OUE and KepLand.

Time to see waz OUE all abt?