Deutsche Bank tips City Developments shares are at ‘attractive entry level’

Singapore 50 dollar bill

Shares of City Developments are trading at an “attractive entry level” after recent underperformance, as the Singapore real-estate sector is still in an early cycle, Deutsche Bank said in a note on Wednesday.

“With broader fundamental indicators including occupancy and rental turning positive and the continuous improvements in commercial properties, City Developments is well positioned to reap the benefits across all segments in Singapore,” the bank said.

The stock’s underperformance over the past three months had been on concerns over residential cycle’s sustainability, the possibility of policy reactions to an overheated market and a rising interest-rate environment, it said. It added that the concerns over potential policy measures as property prices recover would be a major risk that may limit the stock’s performance.

But Deutsche Bank noted that it believed the Singapore housing market remained affordable, with a price-to-income ratio under eight times and a mortgage service ratio under 30 percent. Those could help to forestall any new cooling measures from regulators.

It said it kept a “constructive” view on the market.

“In addition to the strong en-bloc market which saw S$8.4 billion transactions year-to-date and accelerated some of the price recovery over the last six months, we see improvements in other fundamental indicators that point towards a broader base recovery and a sustained residential cycle,” the note said.

It said it expected private residential occupancy, which bottomed at 91.1 percent in the second quarter of 2016 before rising to 92.6 percent in the first quarter, could exceed the previous historical high to a 96-97 percent range by 2021, due to limited supply.

It kept a Buy call on City Developments, with a S$16.00 target price.

The stock ended Wednesday up 1.22 percent at S$11.62.


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