Round 7: On the ropes
All-encompassing package of measures to cast chill on market
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Deutsche Bank AG/Hong Kong
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should
be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should
consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST
CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 072/04/2012.
Elaine Khoo, CFA
Research Analyst
(+65) 6423 6435
elaine.khoo@db.com
Gregory Lui, CFA
Strategist
(+65) 6423 5958
gregory.lui@db.com
Top picks
CapitaLand Ltd (CATL.SI),SGD3.89 Buy
Ascendas Real Estate (AEMN.SI),SGD2.43 Buy
Mapletree Logistics Trust
(MAPL.SI),SGD1.14
Buy
CapitaCommercial Trust
(CACT.SI),SGD1.68
Buy
Companies Featured
City Developments (CTDM.SI),SGD12.60 Sell
2011A 2012E 2013E
P/E (x) 17.5 19.7 17.9
EV/EBITDA (x) 9.7 11.9 10.7
Price/book (x) 1.2 1.6 1.5
CapitaLand Ltd (CATL.SI),SGD3.89 Buy
2011A 2012E 2013E
P/E (x) 38.7 38.8 29.3
EV/EBITDA (x) 22.3 16.3 16.2
Price/book (x) 0.6 1.1 1.0
Keppel Land (KLAN.SI),SGD4.28 Buy
2011A 2012E 2013E
P/E (x) 22.3 16.7 16.0
EV/EBITDA (x) 31.7 26.3 20.0
Price/book (x) 0.6 1.2 1.1
Wing Tai Hldgs (WTHS.SI),SGD2.02 Hold
2012A 2013E 2014E
P/E (x) 6.5 9.4 9.6
EV/EBITDA (x) 4.2 4.2 3.6
Price/book (x) 0.5 0.7 0.7
The latest move came as a negative surprise and is the most comprehensive
and severe to date, which we believe will finally cool the market. With only first
time buyers spared, investment demand will contract significantly which will
affect volumes across all segments, in our view, with downside risk to prices.
Residential-focused developers will be most affected and we downgrade CDL
to Sell and Wing Tai to Hold. We prefer integrated developers; buy Capl.
7th round of cooling measures; temporary & cyclical to engineer a soft landing
The government has introduced a further set of measures to cool both the
private and HDB market, calibrated to tighten up property ownership for
investment as well as foreign buyers, and to discourage over-borrowing. The
ABSD rates will be raised 5-7% across the board, imposed on PRs purchasing
their first property and Singaporeans buying their second property, and LTV
limits on housing loans will be tightened for individuals with an existing
housing loan as well as non-individuals. These set of rules are envisioned to be
temporary and counter-cyclical and will be reviewed in the future depending
on market conditions which should avert an over-correction, in our view.
New rules for EC, HDB markets permanent & structural; industrial also targeted
Measures in the HDB segment such as tighter eligibility for loans, disallowing
the sub-letting by PRs and concurrent ownership of private property are aimed
at moderating demand, instill greater prudence and to require owner
occupation by PRs. In the EC market, new regulations such as the max size of
160sqm should ensure that ECs remain affordable housing option in line with
its policy intent. The imposition of SSD in the industrial segment is meant to
discourage ST speculation and is unsurprising given strong run-up in prices.
Impact broad-based; investment demand to cool; only 1st time buyers spared
The severity of these measures would significantly cool investment demand
across the board with only local 1st timers unaffected. While the higher tax on
foreigners could have a larger impact on the high-end, local investors (c.50%
or more of the SG pool) make up a significant % of low-mid sales and could
retreat. Potential weakness in HDB prices could also reduce upgrader demand.
We expect an initial knee jerk impact on sales (-44% to -63% after the past 2
rounds). Planned launches could be delayed and we expect developers to offer
sweeteners eg. partial stamp duty absorption & rebates, which coupled with
DC charges on PES, could crimp margins. Aggressive price cuts are however
unlikely given strong developer balance sheets & cashflow from presales.
Residential developers vulnerable; REITs more insulated
There could be downside risk to our base case assumption of a 1-3% price
decline in the low-mid end segment and 3-4% growth in the upper-mid and
high-end. The residential focused- developers are more vulnerable and could
see the greatest share price correction. We downgrade Wing Tai from Buy to
Hold & CDL from Hold to Sell. Both companies have the highest sensitivity to
residential prices with every 10% change in price resulting in a 5% and 3.5%
change in NAV respectively. Diversified developers such as Capl and the REITs
should be more insulated. While the SSD for industrial properties could be
negative for sentiment, we see limited impact on the larger investment market
and in the listed space. We prefer AREIT, CCT and MLT.