In a Wednesday report, analyst Joy Wang however believes the upswing in Singapore’s real estate sector is still in its early cycle.
While the en-bloc market has boosted the sentiment and accelerated some of the price recovery over the last six months, Deutsche believes the continuous improvement in occupancy and the potential turnaround in rental market over the next 6-12 months would sustain this residential cycle.
“We expect occupancy to surpass previous peak to 96% by 2020 as a result of the tight supply and believe that the current supply pipeline could be well absorbed. We also believe that Singapore housing remains affordable with price to income ratio under 8x and mortgage service ratio under 30%,” says Wang.
In addition, with commercial properties representing over a third of its RNAV, Deutsche says the group should benefit from a strong domestic commercial property market.
Under CityDev’s capital instrument called profit participation securities Series 2 (PPS 2), Manulife Centre and 7 & 9 Tampines Grande have been put up for sale through separate Expression of Interest processes.
Based on the asking prices, Deutsche says a successful sale of both assets would more than cover the contingent liability and ensure an internal rate of return (IRR) of over 12% for CityDev even with the last building sold at original cost.
At $11.61, the stock is currently trading at about 30% discount to Deutsche’s FY18E RNAV and 1x P/B versus long-term average of 12% RNAV discount and 1.8x P/B. With the sector still in its early upcycle, the research house sees this an attractive entry level and reiterate its “buy” rating with target price of $16.00 based on an average of its forward earnings-based SOTP and RNAV estimates.
