Nomura upgrades City Developments and UOL to Buy

Top of the CapitaLand building in Singapore’s central business district (CBD); taken September 2018.Top of the CapitaLand building in Singapore’s central business district (CBD); taken September 2018.
  • City Developments upgraded to Buy from Neutral by Nomura
  • UOL upgraded to Buy from Reduce by Nomura
  • Wing Tai Holdings upgraded to Neutral from Reduce by Nomura

Nomura said Singapore’s property developer shares could bounce this year, after a tough 2018, pointing to reasons to expect returns on equity (ROE) could rise, spurring the sector to re-rate.

In a bull case, the ROE of property developers Nomura covers could rise an average of 17 percent from its base case, which would justify a “meaningfully” higher valuation in price-to-book value terms, the investment bank said in a note on Tuesday.

The investment bank pointed to three main reasons property developers shares tanked an average of 21 percent last year: The government issued fresh cooling measures, mortgage rates rose and sentiment started the year overly optimistic.

In early July, Singapore took new measures to rein in the residential property sector, including raising the additional buyers stamp duty (ABSD) for individuals who aren’t citizens or permanent residents by 5 percentage points and measures aimed at slowing developers’ en bloc purchases, or acquisitions of existing buildings to be demolished and redeveloped.

But Nomura pointed to three potential catalysts for pushing up valuations.

Firstly, the Singapore 10-year yield fell by 61 basis points in the last quarter of 2018 and commercial property rents, especially office rents, have trended upward, suggesting revaluation gains could be higher than expected this year, Nomura said. It added that investor demand for Singapore commercial properties could also spur divestment gains, which aren’t currently reflected in earnings estimates.

Secondly, Nomura said it expected sales at new launches this year would be better than market was expecting as initial take-up of launches in September and November was higher and suggested home-buying interest was returning. It added that the slowdown in take-up in the initial months after cooling measures were introduced suggested developers were sacrificing early sales in favor of margins by holding the line on their average selling prices.

Finally, developers could deliver an upside surprise on how much capital it returns to shareholders this year, Nomura said, forecasting a 45 percent on-year jump to an aggregate S$1.26 billion this year amid fewer opportunities for investments.


Nomura tipped CapitaLand as its top developer pick, keeping a Buy call, while trimming its target price to S$4.20 from S$4.34.

It pointed to potential divestment gains from 21 Collyer Quay. It also raised its 2018-19 earnings per share (EPS) forecasts by 18-21 percent to reflect better-than-expected property sales in Singapore and China.

Shares of CapitaLand were up 0.64 percent at US$3.16 at 10:36 A.M. SGT.

City Developments

It upgraded City Developments to Buy from Neutral, with an unchanged target price of S$10.85.

Nomura raised its 2018-19 EPS forecasts by 48.6 percent on better-than-expected sales and development margins in Singapore as well as the gain from its recent sale of Manulife Centre.

CityDev has five projects with a total 2,338 units which could be launched this year, including an executive condo project, which is a hybrid public-private residential development and which could see “robust” take-up, Nomura said.

Shares of CityDev were up 1.08 percent at S$8.43 at 10:38 A.M. SGT.

UOL Group

UOL Group was upgraded to Buy from Reduce, with a higher target price of S$7.30, up from S$6.75. Nomura cut its 2018 EPS forecast by 3 percent, but raised its 2019 view by 5.1 percent on changes to the completion and profit recognition schedule for some projects.

But it noted that its average selling price assumptions for the Nanak Mansions redevelopment and the Silat Avenue project, at 1.7 times and 1.9 times land cost respectively, are conservative compared with other similar, recent projects at 2-2.2 times land cost.

Shares of UOL were up 0.32 percent at S$6.30 at 10:38 A.M. SGT.

Wing Tai Holdings

Nomura said Wing Tai Holdings was its “least preferred developer,” but it upgraded the stock to Neutral from Reduce. It trimmed its target price to S$1.90 from S$2.00 to reflect a weaker outlook in the high-end property market.

It raised its fiscal 2019 EPS forecast to 7.3 Singapore cents from 2.8 Singapore cents and its fiscal 2020 EPS forecast to 7.5 Singapore cents from 0.4 Singapore cent on better-than-expected sales at the Le Nouvel Ardmore project and higher contributions from associated companies.

Despite the earnings updates, Nomura said it was the least preferred stock because its valuation was still at a premium to peers. Wing Tai also has less opportunity for ROE to rise as it has less exposure to commercial properties, which could see revaluation or divestment gains, and it has no new project launches scheduled for the year.

In addition, the Le Nouvel Ardmore project “remains a cash drain” as the company must pay extension premiums — or payments due for not  if a project isn’t completed within five years or if it isn’t fully sold within two years afterward, Nomura said.

Shares of Wing Tai last hanged hands at S$1.96 on Monday.


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