Singapore developers’ weighting cut by Maybank KimEng after cooling measures

Knife display at Daiso in SingaporeKnife display at Daiso in Singapore

Maybank KimEng cut its sector weighting for developers in its Singapore market view, removing some from its top-picks list, after a “sucker punch” from the government’s fresh property cooling measures.

In a surprise move, Singapore’s government announced a fresh round of cooling measures for the property market after the market close on Thursday, increasing the additional buyers’ stamp duty (ABSD) for some buyers and lowering loan-to-value limits.

“This begs the question whether regulators now foresee greater economic uncertainly and headwinds from global macro and trade war-related factors versus a few months ago,” it said in a note on Monday.

“The new measures are designed to temper investment demand (est. at around half of total),” it said. “But, on the flipside, it should also moderate future supply shocks by cooling new unit creation.”

While some developer stock valuations appear undemanding after the recent sharp selloff, the overhang on the growth outlook and the risk the government will impose further measures will drag the sector’s performance, the brokerage said.

Overall, Straits Times Index valuations are “undemanding,” Maybank KimEng said, noting a 12-month trailing price-to-earnings ratio of 10.2 times, compared with the 10-year average of 12.4 times.

But it added that the property tightening “effectively kills” one of the catalysts it expected to drive a moderate recovery in the index.

Downgrading the property developers

In a separate report on Friday, Maybank KimEng downgraded the Singapore property sector to Neutral from Positive. It cut earnings per share and revalued net asset values (RNAV) estimates by 5-10 percent to reflect 5-10 percent cuts to its home-price assumptions.

“With 5-10 percent increases in the ABSD for property investors, we expect developers to lower their average selling prices to stimulate demand. We make the biggest cuts for high-end prices to reflect this segment’s larger proportion of property investors,” it said in the Friday note.

It downgraded City Developments to Hold from Buy and cut its target price to S$10.40 from S$14.20.

“CityDev is the de-facto proxy for the sector. With Singapore’s residential market accounting for one-third of its valuation, we expect the recent surprise policy tightening to weigh on its near-term performance,” the note said.

It downgraded GuocoLand to Hold from Buy and cut its target price to S$2.00 from S$3.00.

It downgraded Bukit Sembawang to Hold from Buy and cut its target to S$5.10 from S$8.55.

It cut Oxley Holdings to Hold from Buy and lowered its target price to S$0.34 from S$0.56.

It kept UOL at Buy, but cut its target price to S$8.95 from S$10.85. It said UOL remained its top pick among the Singapore property developers, calling it a much cheaper proxy to the office market recovery than office REITs.

It kept CapitaLand at Buy, but cut its target price to S$3.80 from S$4.10.

It kept Ho Bee Land at Buy, but cut its target price to S$3.05 from S$3.30.


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