Since early 2017, large-cap property developers saw their stock valuations ballooned by about 31% year-to-date while micro-cap players (less than $400 million market cap) skyrocketed by 68%.
After a 15-quarter decline in the URA property price index, we finally see a rebound starting in 3Q17. Moreover, we also see some apparent signs of recovery in the CBD office leasing market.
That said, looking at Figure 1 by CIMB Research below, we can see small and mid-cap developers haven’t performed as well as their counterparts, presenting a potential opportunity.
As such, CIMB Research singled out six smaller-cap property developers, all of which are trading at 44% to 62% discount to their revalued asset backing albeit with debt-to-equity ratios of 0.5-1.4x.
CIMB Research didn’t give a rating or target price for these six property stocks because they have yet to assess the asset backing of these lesser-covered companies.
1. Hong Fok Corporation Limited (Hong Fok)
Majority of Hong Fok’s profit-generating activities are focused on the Singapore and Hong Kong market. In FY16, it derived 81% of its revenue from property investments and 16% in development.
Hong Fok’s residential portfolio includes 118 apartments in the Concourse Skyline, and two units at the Jewel of Balmoral, which adds up to a total carrying cost of $245.2 million at the end of 2016.
On top of its rental income base of a $2.5 billion investment property portfolio, it recently opened Yotel Orchard, the first Yotel property in Asia.
With a low net-debt-to-equity ratio of 0.47x as at end-2Q17, Hong Fok Corporation Limited (SGX: H30) is currently trading at 0.41x price-to-book value and a 65% discount to its revalued net asset value (RNAV) of $2.55.
2. Sing Holdings Limited (Sing)
Over the past half-a-century, Sing has a reputable track record in property development and investment in the local residential, commercial and industrial space, and more recently, hospitality.
It has recently purchased a hotel (Travelodge Docklands) in Melbourne. Given that the hotel was able to achieve an average occupancy rate of 92.6% in 2016, it can help bolster Sing Holdings’ recurring income.
With a new residential launch underway (Parc Botannia), CIMB Research expects a potential earnings recovery after it’s launched on 11 Nov 2017 at an average selling price of $1,280/sqft (up to $125 million in total).
Sing Holdings Limited’s (SGX: 5IC) net-debt-to-equity ratio is still sitting at 0.91x as at end-2Q17, fairly comfortable considering it’s trading at 0.77x price-book value and 44% discount to CIMB Research’s RNAV estimate of $0.88.
3. Roxy Pacific Holdings Limited (Roxy)
As a property and hospitality group with an Asia-Pacific slant, Roxy impresses with about 20% of its revenue as at 9MFY17 coming from recurring rental income, hotel operations and residential development.
On top of its unbilled locked-in sales of $466 million from property development projects in Singapore, Australia and Malaysia, Roxy is actively acquiring land for even more development opportunities.
It ventured into the Australian property development and investment field in 2014 and currently has three ongoing projects which will total to 283 units in Sydney and Brisbane.
As at end 3QFY17, Roxy Pacific Holdings Limited (SGX: E8Z) has a net-debt-to-equity ratio of 0.99x and an RNAV of $1.00, considering its 3QFY17 book value of $0.422 per share.
4. Chip Eng Seng Corporation Limited (Chip)
After transitioning into a developer, Chip amassed exposure to residential, commercial property and hotels, particularly in Asia-Pacific. As at end-2Q17, its order book stands at $538 million, comprising private and public property constructions.
With a locked-in attributable residential pre-sales of about $0.9 billion from now through 2021, CIMB Research sees strong residential earnings for Chip.
Moreover, Chip’s recent purchase of two land parcels in Singapore will widen its exposure to the Singapore residential market recovery, whichwill add up to a total of 800 units.
Chip Eng Seng Corporation Limited (SGX: C29)’s net-debt-to-equity ratio stands at 0.84x and is currently trading at 0.79x price-book and a 45% discount to RNAV of $1.77.
5. Hiap Hoe Limited (Hiap Hoe)
Owning a diversified portfolio with exposure to hospitality, retail, commercial and residential property, Hiap Hoe also has a strategic holding in SuperBowl and a construction arm of its own.
With a portfolio of 1282 hotel rooms across the three countries, hotel operations make up almost half (49%) of its 1H17 revenue, while rental and development properties contributed 28% and 17% respectively.
28% of its revenue is recurring in nature, and Hiap Hoe’s recently residential project in Australia plus plans in the pipeline paves a path for growth opportunities in the near future.
Trading at 0.58x to price-book value and 56% discount to RNAV of $2.02 per share, Hiap Hoe Limited (SGX: 5JK) is sitting on a net-debt-to-equity ratio of 0.66x as at end 2Q17.
6. Tuan Sing Holdings Limited (Tuan Sing)
Apart from Tuan Sing’s well-diversified portfolio of property development and investments, it also has holdings in other unrelated sectors such as commodities trading, plastic bags and circuit boards.
Tuan Sing has a recurring income base from hotel operations, which makes up 34% of its 9M17 revenue. Rental income from office and other properties are significant contributors too.
Tuan Sing Holdings Limited’s (SGX: T24) net-debt-to-equity stands at the highest among the six stocks at 1.37x as at end-Sep 2017 but trading at 0.54x book-price value and a 62% discount to RNAV of $1.10.