DBS: Singapore Property: Valuations too cheap to ignore!

We issue an update on the property developers today.

The recent introduction of property cooling measures is expected to have a far-reaching impact on the Singapore property market and will lead to a estimated 40% drop in decline in transaction volumes in the primary market and PPI likely turn flat with a downside bias as investment demand (locals and foreigners) are likely to dry up. While macro catalyst maybe lacking for developers, we highlight that valuations are very attractive at 0.55x P/NAV with most developers trading at lower levels below that of past measures. We focus on stock specific catalysts for outperformers and prefer CLI SP (BUY, TP S$4.0), CDL (BUY, TP S$10.50) and Hobee (BUY, TP S$3.80).

Key thesis:

•             Cooling measures a timely break to robust property price and transaction surge in 2021

•             Slowing market to have minimal impact on selected listed developers given strong pre-sales trends, leaving only c.27% of stock unsold.

•             Developers trading below trough levels seen in past cooling measures, accumulate on further weakness

•             Pick CLI, CDL and Hobee.

Current Developer P/NAV compared to previous trough P/NAV post cooling measures

Lowest P/NAV multiples seen post measures:	FSTREH	City Dev	UOL	FPL	BS	WingT	Hobee	Guocoland
Govt series of cooling measures (17/12)	0.55x	0.73x	0.61x	0.47x	0.97x	0.40x	0.52x	0.42x
Govt increased average minimum size (18Oct’18)	0.52x	0.71x	0.52x	0.62x	1.08x	0.40x	0.47x	0.47x
Govt implemented ABSD (6’Jul’18)	0.52x	0.74x	0.53x	0.62x	1.08x	0.40x	0.46x	0.48x
Govt imposed TDSR (9th Dec’13)	0.75x	1.02x	0.70x	–	1.18x	0.47x	0.55x	0.96x
Govt imposed TDSR (29th Jun’13)	0.80x	1.15x	0.77x	–	1.34x	0.56x	0.56x	0.88x
Govt raised ABSD/lowered LTV (12th Jan’13)	0.89x	1.26x	0.75x	–	1.46x	0.50x	0.52x	0.91x
Govt first implemented ABSD (8th Dec’11)	0.62x	1.19x	0.56x	–	1.02x	0.39x	0.42x	0.84x

Source: URA, Bloomberg Finance LLP, DBS Bank