Singapore Developers 2H Outlook
Property developer stocks have rebounded in the past month, on expectation of lesser immediate policy risks as recent policy measures start to bear fruit in the form of decelerating monthly primary transaction volumes and slowing momentum in sequential home price growth. YTD May
primary sales total 10,687 units and are largely concentrated in the mass market segment. However, concerns over the slowing global economy, the potential spillover effect on Asia and policy watchdogs continuing to signal willingness to act should the situation turns too frothy, will cap upside to stock prices.
We expect the sector to continue to range trade in the 2H with better performance from stocks with less residential exposure.
Key risks to our view are factors such as a hike in interest rates or clampdown in ample liquidity in the system or an increase in investor risk appetite.
Valuation and stock picks
Property stocks are currently trading at an average 31% discount to RNAV, which is just a tick higher than the -1SD level. Our strategy remains to pick stocks with less exposure to the residential sector and have more diversified business model such as CMA and Capitaland. CMA (CMA SP, TP $2.06) offers investors exposure to the pan Asian retail real estate market. Earnings are expected to pick up from FY12 with the bulk (70%) of its portfolio becoming operational. The stock offers 21% upside to target price of $2.06, which is pegged at a 20% discount to asset backing. Capitaland (CAPL SP, TP $3.39) offers attractive valuations at a 44% discount to asset backing of $5.21. The group's reinvestment strategy in recent years into some $11b worth of new projects group-wide would enable it to reap gains when these developments are completed over the next few years.
Publish date: 16/07/12