Thursday, March 26, 2015

Property developers

Property developers: Maybank-KE resumes coverage and Overweights the sector, citing privatizations and the fine tuning of cooling measures as key catalysts.

The house suggests that privatizations offer deep value for properties, highlighting that Keppel Land’s independent financial adviser’s view that Keppel Corp’s privatization offer is not a fair offer. Meanwhile, QC penalties may also persuade some developers to de-list.

Meanwhile, Maybank-KE expects home prices to come down 15% by 2016, and with key concerns – home prices, speculation, interest rates and foreign buying, moving towards its desired directions, there could be room for a review of cooling measures.

Measures that could be relaxed is the ABSD to provide support for a now artificially-suppressed high-end market, relative to a delayed of ABSD easing for citizens and PRs, given still elevated mass-market prices. Cognizant of inventory build-up and large supply from government land sales, the government may try to pre-empt a sharp collapse in prices, and this could make way for ABSD for second-home purchasers to ease.

Valuation-wise, Maybank-KE’s developer coverage universe at 0.7x P/B and 39% discount to RNAV. This compares to recent privatization offers of 1.06x P/B and 19% discounts to RNAV.

The house likes Wing Tai (TP $2.37) and Ho Bee (TP $2.75) for exposure to high-end rebound, and CDL for new platforms that could unlock value (TP $11.40)

Investment theses of developers under coverage (by preference):

Wing Tai – Best proxy for lifting of cooling measures for foreigners, and/ or privatization to avoid QC penalties. Attractively priced at 52% discount to RNAV. Maybank-KE’s TP values Wing Tai at 35% discount to RNAV.

Ho Bee Land – Low risk exposure to high end, given unsold units could be leased out given QC exemptions, in a scenario where high-end sentiment does not rebound. Income-producing offices more than 60% of asset value, rendering its 52% discount to RNAV unwarranted. Maybank-KE’s TP values Ho Bee at 35% discount to RNAV.

City Developments – New platforms for sourcing funds may unlock portfolio value, providing NAV upside. Ample inventory to capitalize high-end sentiment upturn. Maybank-KE’s TP values CDL at 15% discount to RNAV, 0.5x SD below 10 year historical average.

CapitaLand – Offers diversity with asset spread across Singapore/ China. 75% assets produce recurring income. Nevertheless, there are no current catalysts and Maybank-KE opines achieving ROE target of 8-12% might be challenging. Maybank-KE rates CapitaLand a Hold with TP of $3.85, based on 15% discount to RNAV.

OUE – Good value at 44% discount to RNAV and 0.52x P/B. 84% unsold Twin Peaks may benefit from turn in high-end sentiment, but not a privatization due to Indonesian parentage. Risks cumulative QC penalties of $251m in three years after deadline. Maybank-KE rates a Hold with TP of $2.32, based on 40% discount to RNAV, steeper than Ho Bee and Wing Tai due to a riskier profile

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