Singapore Property: Good results overshadowed by policy uncertainties

By Foo Sze Ming
Wed, 3 Mar 2010, 08:50:59 SGT

The 4Q09 results reporting season came to a close and majority of the property developers under our coverage reported earnings that exceeded our expectations. Despite the good results and strong property sales, share prices of property developers failed to outperform the market. This was attributable to the lingering uncertainties on government policies towards the property market in the region. We think that the market remains concerned on the impact of the property measures but this could change when developers continue to achieve strong take-up rates for their projects going forward. A pro-long extension of the low interest rate environment could also help to drive property sales. As such, we remain positive on the residential property segment and reiterate our BUY ratings on the following property developers: CapitaLand, Keppel Land, UOL Group and Soilbuild Group. Our sector rating remains NEUTRAL due to our negative view on the office market.

Developers outperformed on 4Q09 results. The 4Q09 results reporting season recently came to a close and the majority of the property developers under our coverage reported earnings that exceeded our expectations. The outperformance came largely from the property development segment, which we attribute to the better-than-expected construction progress and strong residential property sales. Those with exposure in the hospitality industry had also reported stronger recovery in their hotel operations in 4Q09, which also added to the positive variance. The rate of asset devaluation had also slowed down at the end of 2009, with the recovery of the economy and property market but office assets faced more downwards pressure in revaluation due to oversupply and rent concerns.

Good results overshadowed by policy uncertainties. Despite the good results and strong property sales, share prices of property developers failed to outperform the market. This was due to the lingering uncertainties on government policies towards the property market in the region. We believe that investors have turned cautious on property developers in light of the various government measures and sentiment could remain cautious over the near term.

Sufficient safeguards to limit speculative activities. We believe that the recent property measures are to pre-empt and prevent marginal speculators and investors from over-stretching themselves and destabilizing the property market in the event that the mid-high end property segments continue to pick up for the rest of 2010 with the opening of the integrated resorts. With the measures, we believe that there are now sufficient safeguards to prevent investors and speculators from jumping recklessly into the property market. As such, we believe that it is unlikely that more property measures will be introduced over the short term.

Take-up rate of new launches to provide catalyst. Despite the property measures, take-up rates for some of the new residential projects have remained healthy. We think that the market remains concerned on the impact of the property measures but this could change when developers continue to achieve strong take-up rates for their projects going forward. A prolong extension of the low interest rate environment could also help to drive property sales. As such, we remain positive on the residential property segment and reiterate our BUY ratings on the following property developers: CapitaLand (BUY; FV S$5.00), Keppel Land (BUY; FV S$3.82), UOL Group (BUY; FV S$5.25) and Soilbuild Group (BUY; FV S$1.75). Our sector rating remains NEUTRAL due to our negative view on the office market.

Disclaimer for Research Report

This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our written consent. This report should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities mentioned herein. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a commitment to invest in the securities. OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

Privileged/Confidential information may be contained in this message. If you are not the addressee indicated in this message (or responsible for delivery of this message to such person), you may not copy or deliver this message to anyone. Opinions, conclusions and other information in this message that do not relate to the official business of my company shall not be understood as neither given nor endorsed by it.

For and on behalf of OCBC Investment Research Private Limited:

Carmen Lee
Head of Research

Co.Reg.no.:198301152E