If 2017 was a year of reinvestment for developers, 2018 would be a year of more reinvestment and execution. Having accumulated a good inventory of land, developers will be ready to pounce on the recovering property market in Singapore.
According to CIMB, 2018 will be another year of outperformance for property stocks, especially those with launch-ready projects that could be rolled out in the next 12 months.
Residential: Keep An Eye On Demand Momentum And Landbanking Activities
CIMB anticipates that share price performance of property developers will be fuelled by strong end-buying demand momentum. Investments into new land bank and deployment of balance sheet capacity will also continue to provide uplift to Revised Net Asset Values (RNAV). Based on historical data, CIMB highlights that take-up rate will be key in determining the share price performance of property developers.
Hospitality: Demand And Supply Backdrop Improving
The hotel industry was in poor shape over the past three years with revenue per available room (RevPAR) declining despite growth in tourist arrivals. This was due to a changing profile of tourists and higher than average supply of hotel rooms coming on-stream during 2015 to 2017.
Moving forward, CIMB expects the demand and supply backdrop to improve as tourist arrival growth continues to be healthy. As of 8M17, visitor arrivals increased 4 percent and tourist arrivals growth momentum should sustain in 2018, with a projected increase of 3 percent. Meanwhile, new supply is expected to taper off to 1.7 percent total room stock growth compared to five-year historical compounded annual growth rate of 5.1 percent, which should help to drive RevPAR in 2018.
Investors Takeaway: 3 Property Developers To Watchlist
- UOL Group
UOL Group (UOL) is CIMB’s top pick among property stocks. UOL has a residential and commercial property portfolio that is predominantly focused in Singapore. Since consolidating United Industrial Corporation, UOL has become a major office landlord as well. The new-looked UOL owns a total of 5.69 million square feet of office and retail space in Singapore, putting them in a good position to benefit from the office sector recovery.
From the residential front, UOL has some sites that are launching in 2018. These sites were bought at bargain rates before 2017’s run-up in land prices.
BUY, TP $9.62 (Current share price: $8.83)
- Bukit Sembawang Estates
Bukit Sembawang Estates (Bukit Sembawang) is a concentrated proxy for Singapore’s residential market, according to MBKE. With stronger home buying sentiments and depleting unsold inventories, there are opportunities for Bukit Sembawang to profit from higher home prices.
Bukit Sembawang is attractively priced at a 42 percent discount to RNAV. This is much larger than the average 14 percent trading discount of its large-cap peers, despite prospects of stronger returns. MBKE believes that its market-leading dividend yield of 5.6 percent can be sustained by a pristine balance sheet and improving earnings.
BUY, TP $8.25 (Current share price: $6.28)
Continued reinvestment into new RNAV-accretive projects and capital recycling are key potential re-rating catalysts, according to CIMB. CapitaLand managed to record 108 units in sales in 3Q17 from projects such as Victoria Park Villas, Interlace, Sky Habitat and Marine Blue.
While limited residential units remaining in inventory will affect its earnings upside, its office and hospitality portfolio will make up for it. The newly-acquired Asia Square Tower 2 under CapitaLand Commercial Trust will add to CapitaLand’s earnings. Its Ascott Residence Trust should also see higher revenue in 2018 from its portfolio of hospitality properties.
BUY, TP $4.25 (Current share price: $3.55)