CREDIT SUISSE raised its rating on Singapore’s residential property sector to “Outperform” this week, having adjusted its valuation of property developers on its radar screen by 47% to 120%.
This is despite property developer stock prices having run up 56% year-to-date and 119% since the March bottom, and outperforming the STI by 29% and 65%, respectively.
The broker believes the recovery to be justified as stock markets were previously in shock, uncertainty and underperforming.
Stock wise, it upgraded Allgreen, Wing Tai and CapitaLand to “Outperform”, and is “Neutral” on City Developments and Keppel Land.
Allgreen and Wingtai are pure residential plays that are benefiting from market stabilization at better than expected prices, while CapitaLand is a large cap stock with diversified exposure to various real estate sectors and geographies.
Credit Suisse estimates that total housing supply is in line with statistics on formation of new nuclear families through marriages, but expects Singapore's office sector to underperform due to an oversupply.
While private homes are selling at 10% to 30% lower than their peak, the price levels are still 20% to 80% better than Credit Suisse assumptions.
And the broker believes these levels are sustainable, due to positive economic indicators such as expatriate outflow and job losses being lower-than-expected, healthy household incomes and improved credit conditions.
Credit Suisse economist, Cem Karacadag, has also upgraded Singapore’s 2010 GDP growth to 4.4% (from 3.9%), based on convincing signs of sequential growth in output and demand in 1Q09.
| Report Date | Wed Close | Target Price | Upside | |
Allgreen | 22 Jun | 96.5 cents | S$1.22 | 26% |
CapitaLand | 22 Jun | S$3.65 | S$4.21 | 15% |
Wing Tai | 22 Jun | S$1.41 | S$1.51 | 7% |
Credit Suisse upped its price target for the leading Asian real estate developer by 69% to S$4.21 (from S$2.49) based on parity to its readjusted net asset valuation.
Its core businesses in real estate, hospitality and real estate financial services are focused in gateway cities in Asia Pacific, Europe and the Middle East.
The broker likes CapitaLand’s exposure (44% of RNAV) to Singapore and China residential and retail, where news flows is expected to positive.
That is, selling prices are stabilizing and transaction volumes picking up, while government stimulus packages boost retail consumption.
Secondly, CapitaLand is well capitalised after its February fund raising exercise and has cash reserves of S$4 billion, and a relatively low net gearing of 0.32 times.
Credit Suisse expects CapitaLand to acquire land parcels in tier-one and/or tier-two Chinese cities where the property developer has operational efficiencies, for e.g., in Shanghai, Beijing and Guangzhou.
However, the broker expects CapitaLand’s commercial and hospitality businesses, and Australand to be laggards.
Key risks cited include poor deployment of its new capital, and slower-than-expected growth. 
Credit Suisse more than doubled its price target for the Singapore property developer to S$1.22 (from 50 cents) after upgrading its rating to “Outperform” from "Neutral".
Allgreen’s asset values comprise of 49% in investment properties (S$1.98 billion), which are mostly in Great World City offices, as well as in malls and serviced apartments.
Retail rentals have been relatively resilient, but the broker expects offices and hotels to be especially challenging.
Allgreen also has a residential landbank of over 2 million square feet in gross floor area. Its mid to high-end projects include VIVA and Cascadia, Suites@Orchard and Enggor Street while mass-market projects include Mar Thoma and some west coast sites.
Wing Tai
Credit Suisse upped its target price on this proxy stock to Singapore's mid-high to luxury residential market by more than two-thirds to S$1.51 (from S$0.88).
It likes Wing Tai for its stronger balance sheet and highest sensitivity to further upside in Singapore residential prices.
At a relatively low net gearing of 0.44 times, Wing Tai is able to accumulate land bank at suitable opportunities.
The broker expects the pending launch of Wing Tai’s sole low/mid-end project - Ascentia Sky at Alexandra Road, to do well as the 99-year leasehold development is targeted at the healthy mid-level market.
Break-even cost for the project is S$1,000 per square foot.
However, much of Allgreen’s land bank (51% of by value, or 34% by GFA) is still exposed to the weak luxury market (that is, developments that go for over S$2,000 per square foot).
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