Singapore Property Sector - Awaiting the silver bullet


We assume coverage of the Singapore property developers sector with City Developments (OUTPERFORM) and CapitaLand (NEUTRAL).

Persistent oversupply could pave the way for easing in 2H16 
We expect average net demand of 17,841 units over 2015-19E to be materially below the average net supply of 40,990 units, resulting in an oversupply well into 2019. This is likely to put downward pressure on occupancies, rents and capital values, leading to price declines of 5-10% in 2016E. Arguably, such an outcome could then lay the stage for a re-calibration of property measures, especially as speculative activity and foreign demand have been curbed, while income growth has outpaced home prices.

Value unlocking is key; CDL (OUTPERFORM, TP S$12.00) is our top pick
Based on our view that the Singapore residential market is likely to deteriorate further before an eventual easing improves sentiment, corporate action to unlock value should be the key share price driver in the near term. In our view, CDL has an under-appreciated asset portfolio, e.g., its S$3.9 bn Singapore office assets. As at Sep-2015, CDL's investment properties were held at historical cost of S$3.1 bn vs our estimated value of S$7.6 bn. Capital recycling initiatives would be a key near-term catalyst to crystallise value, with valuation attractive at 0.79x P/B (-1.4 SD from the historical average).

Greater uncertainties on the road to growth for CapitaLand (NEUTRAL, TP S$3.50)
While CapitaLand's valuation looks undemanding, we believe potential upside is limited, given the uncertainty around near-term earnings and the achievement of an ROE target of 8-12%, and execution risks. (Read Report)

Source : Credit Suisse Asia Pacific Equity Research

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