The property sector in Singapore looks set to be recovering. Private primary sales (ex-EC) momentum has been improving over the past four months. As at 16 May 2017, there have already been 1,555 units sold, representing a 107 percent year-on-year increase. Year to date sales rose to 4,517 units, which is the best start to the year since 2013.

Credit Suisse believes that the improving residential fundamentals and sentiment will continue to be the key drivers for outperformance for developers in the coming quarters of 2017. Among the property stocks, there are three standout stocks DBS Research and Phillip Capital have highlighted in their reports.

1. Frasers Centrepoint Limited

Shifting focus back to Singapore’s market

Among the property stocks, Frasers Centrepoint is one of the recommended buy calls from DBS Research.

Frasers Centrepoint has been actively investing in new development opportunities in a few of its major markets, namely Australia, Europe (Geneba) and Thailand (TICON, One Bangkok) through mergers and acquisitions (M&A) and purchasing of land sites.

Moving forward, Frasers Centrepoint could shift its focus to lookout for new land sites in Singapore through upcoming government land sales (GLS) or en bloc deals as the management maintains its positive outlook on the Singapore property market.

DBS reiterates the management’s positive sentiments and believes that Frasers Centrepoint could benefit positively from the improving sentiments in the Singapore property sector.

DBS cites the strong sales in Frasers Centrepoint’s Seaside Residences as a positive sign for Singapore’s property sector. Given its diminishing landbank, potential land-banking activities could act as a positive catalyst to the share price of Frasers Centrepoint.

Undervalued, on top of its 5% dividend yield

In terms of valuation, DBS believes that Frasers Centrepoint remains attractively priced at 0.8x P/NAV and continues to lag the other large-cap developers (which are trading closer to 1.0x P/NAV).

DBS views this as a sign that Frasers Centrepoint’s upcoming Singapore projects have been undervalued by the market, thus leading to the discrepancy. Frasers Centrepoint’s dividend yield remains the highest among developers at close to five percent.

DBS Research: Frasers Centrepoint Limited (SGX: TQ5) – BUY; Target Price $2.30

2. UOL Group Limited

Higher revenue recognition to drive 2017 results

Another company that has been undervalued by the market is UOL Group. UOL delivered decent results in 1Q17 with a 4.0-percent rise in earnings backed by revenue growth in all its divisions and stable occupancy portfolio.

This is largely driven by higher revenue recognition from projects like Principal Garden and Botanique at Bartley, which are currently under development.

DBS notes that there was significant interest in UOL’s (1Q17; 505 units) launch in 1Q17. Moving forward, the management expects to launch Raintree Garden, Amber Road and Bishopsgate in 2018.

DBS highlights that successful launches of recently purchased land sites in the en bloc market could act as a potential catalyst for UOL’s stock price.

UOL has also been more active in landbanking than the other large cap developers. With its recent landbanking activities, it supports the longer-term income visibility of UOL.

Deep value buy

Apart from its earnings visibility, UOL is currently trading at an attractive valuation of ~0.7x P/NAV. Relative to its historical range, ~0.7x P/NAV is at the lower end of its historical range. Thus, both Phillips Capital and DBS recommends UOL as a deep value play.

DBS Research: UOL Group Limited (SGX: U14) – BUY; Target Price $8.73

3. City Development Limited

Disappointing 1Q17 as expected

City Developments (CDL) didn’t have the best of quarters in 1Q17. 1Q17 PATMI decreased 18.9 percent year-on-year to $85.5 million.

This was due to a range of factors including

(i) the absence of contributions from two JV projects (Bartley Ridge and Echelon) which achieved TOP in 2016,
(ii) exchange losses, and
(iii) lower investment income from investing in Real Estate Capital Asia Partners.

However, the street had largely expected a muted set of results and had already priced in their expectations.

CCR segment recovery

In 1Q17, CDL sold a total of 90 units in the 174-unit high-end freehold condominium development of Gramercy Park. CDL had a soft launch in March and managed to sell 16 out of 20 units in the second tower where the average selling price (ASP) rose from $2,600 per square feet (psf) to $2,800 psf.

Phillip Capital views the strong take up rate in Gramercy Park and ASP gains as a sign that Singapore residential prices have bottomed out in the core central region (CCR) segment.

With two upcoming launches (New Futura and South Beach Residences), the forward outlook for CDL looks positive.

Thus, moving forward, both Phillip Capital and OCBC expects results to improve from revenue recognition of the handover of units in the next few quarters.

Phillip Capital: City Developments Limited (SGX: C09) – BUY, TP $11.07

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