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OCBC Investment Research on Monday kept its "buy" rating on Wheelock Properties with an unchanged fair value estimate of S$2.38.
"Wheelock is our top pick amongst the mid-sized developers and we advocate that investors buy on its recent price weakness, particularly as it finds technical support near S$1.76 levels," analyst Eli Lee said.
The stock was trading at S$1.79, down 2.5 Singapore cents or 1.4 per cent, at 12.29pm on Monday.
Mr Lee said that amid "unabated headwinds" in the weak domestic residential market going ahead, he prefers developers with sizeable income from investment assets, a strong balance sheet and potential upside catalysts. "Wheelock Properties provides a stable dividend yield of 3.3 per cent underpinned by the group's prime Orchard retail assets: Wheelock Place and Scott's Square Retail," he noted.
As at end-June 2014, Wheelock Place was fully occupied with a monthly rental of above S$13 psf per month. Scotts Square Retail was 93 per cent occupied, with an average rental of above S$22 psf per month, and the management is reportedly looking at rejuvenating the mall with stronger luxury labels and food-and-beverage concepts.
"While Singapore's residential sales are likely to remain uninspiring going forward, Wheelock's development asset exposure is contained at 30 per cent of total assets as at end-Q2 2014, and we believe the group's solid balance sheet, with a healthy cash balance of S$410 million and low gearing of 7.3 per cent, will likely buttress it through the residential down-cycle ahead," Mr Lee said.
Meanwhile, Wheelock's 22.6 per cent stake in Hotel Properties Ltd is another potential catalyst, should the latter decide to extract value from its multiple highly-prized but under-developed assets in the Orchard area, he added.