City Developments Ltd: Top bidder for Sengkang residential site

By Foo Sze Ming
Mon, 8 Feb 2010, 08:54:33 SGT

Last week, HDB announced the bids for a 99-year leasehold private condo plot in Sengkang. Sunmaster Holdings, a subsidiary of City Developments Ltd (CDL), came out top in the bidding, with a bid of S$200.5m (S$365 psf on GFA). The tender had seen 10 developers putting in bids for the site. We view the presence of many experienced developers as an indication of their positive view on the healthy fundamentals of the mass market property segment in Singapore. Based on our assumptions, we projected a breakeven cost of S$679 psf for the site. We assume an average selling price of S$750 psf for this project, which translates to pre-tax margin of 7.4% and NAV accretion of 3 S-cents per share. Our fair value has now been raised to S$10.46 (previously S$10.43). For now, we are leaving our estimates unchanged, pending the release of CDL’s result on 25th Feb. We maintain our HOLD rating on CDL.

Highest bidder for Sengkang residential site. Last week, HDB announced the bids for a 99-year leasehold private condo plot in Sengkang. The site has a GFA of 548,920 sq ft and is located along Sengkang West Avenue and opposite Layar LRT station, which is connected to Sengkang MRT station. It was on the Reserve List under the Government Land Sales Programme and tender for the site was triggered in early January, when a developer committed a minimum bid of S$70m (S$128 psf on GFA). Sunmaster Holdings, a subsidiary of City Developments Ltd (CDL), came out top in the bidding, with a bid of S$200.5m (S$365 psf on GFA).

Keen interests but signs of cautiousness showing up. The tender had seen 10 developers putting in bids for the site. The bidder list includes other established developers such as Far East Organization, Frasers Centrepoint, Chip Eng Seng, Allgreen Properties, GuocoLand and Sim Lian. We view the presence of these experienced developers as an indication of their positive view on the healthy fundamentals of the mass market property segment in Singapore. CDL’s bid of S$200.5m was 13.3% higher than the S$177m bid put in by the next highest bidder, Far East Organization and this is not over-excessive, in our view. Bid price was also lower than the top range of S$420 psf on GFA that market consultants had expected, which provides more signs of cautiousness among developers in land acquisition after a series of cooling measure by the government.

Expect NAV accretion of 3 S-cents from the new site. Based on our assumptions, we projected a breakeven cost of S$679 psf for the site. As a comparison, nearby condominium Seletar Springs, which is on a 99-year leasehold low-rise development completed in 2001 and further away from the LRT station, is fetching S$530 psf to S$630 psf in the resale market. Nevertheless, the pricing for this new project should be higher, given that it is next to a LRT station and also a high-rise development with 24 to 25 floors. We assume an average selling price of S$750 psf for this project, which translates to pre-tax margin of 7.4% and NAV accretion of 3 S-cents per share.

Maintain HOLD with fair value of S$10.46. Including the Sengkang site in our valuation, our fair value has now been raised to S$10.46 (previously S$10.43). For now, we are leaving our estimates unchanged, pending the release of CDL’s result on 25th Feb. We maintain our HOLD rating on CDL.

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