SINGAPORE (Sept 5): CIMB is maintaining its “overweight” on Singapore’s property stocks as they are trading at about 30% discount to RNAV despite outperforming the STI benchmark year to date.
In a Monday report, analyst Lock Mun Yee expects the property development and investment sector to continue to perform well given the evidence of volume and sentiment recovery.
The latest development charges (DC) for Sept 17-Feb 18 show unchanged or higher DC rates for all property sectors. Non-landed residential rates jumped by an average 13.8% over the same period, with the highest rise of 29% applied to the Tampines Rd, Hougang, Punggol and Sengkang areas, as a result of strong pricing during the recent en-bloc transactions
“While the hike was expected, we believe the full quantum of some of the increases may not have been fully factored in at this point,” says Lock.
Among the recently concluded transactions, Lock says Rio Casa, Eunosville, Serangoon Ville and the Tampines Court HUDC sites have yet to lock in their charges.
“Going forward, we think a higher land cost could mean a more realistic en-bloc tender price,” says Lock.
In terms of supply, potentially 8,500 new apartments can be redeveloped over the next few years from the 11 residential e-bloc transactions that will displace 1,998 existing households.
“With new private housing completions declining to 8,417/8,465/5,939 units in 2018/2019/2020, we believe the market could likely absorb the additional inventory,” Lock adds.
With this, Lock has picked UOL Group, City Developments, Capitaland and Wing Tai as his top “buys”.
The analyst likes Capitaland for its ROE-boosting capital recycling activities and the fact that the stock is trading at a 28% discount to RNAV. Lock has a target price of $4.21.
Meanwhile, City Developments’ Singapore and overseas earnings are expected to continue underpinning its near term growth.
“CityDev’s low gearing of 0.16x and resumption of landbank restocking activity should underpin its RNAV expansion, in our view,” says Lock who has a target price of $12.54.
Supported by rentals, hotel operations and investment holdings, UOL Group is seeing a high recurring income base. Through its associate UIC, the group also has good office exposure. The stock is also trading at a 28% discount to RNAV. CIMB has a target price of $9.03.
UOL is also one of the developers with en-bloc landbank that is unlikely to be affected by the increase in DC. The charges for UOL/UIC’s Raintree Gardens have already been locked in as it was acquired in 4Q16.
As at 10.22am, shares in Capitaland, City Developments and UOL are trading at $3.76, $11.78 and $8.07 respectively.
