In a Monday report, KGI says that fundamentally, the resilient new home sales have been driven by improved housing affordability. The price-to-income ratio has improved to around 7x in 2019, down from 9x in 2010, driven by increasing household incomes.
This shows that the property sector is experiencing a positive momentum. YTD, local property-related companies have performed well, with CapitaLand, City Developments (CDL) and UOL Group gaining between 16% and 31%. These three blue-chip stocks are also KGI’s favourite picks within the property space.
“We believe there could be further upside to property-related companies as many of them are still trading below their five-year price-to-book averages,” says KGI.
Although CapitaLand is trading at a 5% premium to its five-year price-to-book average, KGI expects a rerating as it achieves its 9-11% ROE target following the $11 billion acquisition of Ascendas-Singbridge.
The merger and acquisition created a bigger entity, which is new one of Asia’s largest diversified real estate player with more than $123 billion of assets under management (AUM).
Additionally, CapitaLand on Oct 1 announced plans to grow its AUM in India to $7 billion by 2024 from $3.3 billion currently.
On top of the improving conditions of the Singapore property sector, CDL will be compulsorily acquiring the remaining shares in its London-listed subsidiary Millennium & Copthorne (M&C) held by shareholders who have not yet accepted the final offer of 685 pence per share. This final offer will remain open until further notice.
Following the shares acquisition, M&C will be re-registered as a private company.
In its latest 2Q19 results, CDL saw a 26.4% y-o-y drop in its earnings to $162.4 million, on the back of a 37.5% fall in revenue
On the other hand, UOL saw a 48% y-o-y increase in its latest 2Q19 earnings to $195.4 million, despite revenue dropping 20% to $512.3 million.
The group also recently announced that it has divested an apartment unit located at Silat Avenue for a consideration of $0.9 million to an interested person.
As at 4.00pm, shares in CapitaLand, CDL and UOL are trading at $3.60, $10.50 and $7.66, respectively.
