Brokers’ take: CapitaLand Investment is UOBKH’s top pick as property stocks take a hit
Add BT as a preferred sourceBryan Kow
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UOB Kay Hian (UOBKH) has chosen CapitaLand Investment (CLI) as its top pick for the property sector, after stocks took a hit from hikes to Additional Buyer’s Stamp Duty (ABSD) rates for residential properties that went into effect on Thursday (Apr 27).
Under the revised rates, entities and trustees will have to pay 65 per cent ABSD, up from 35 per cent previously.
“Sentiment towards the property sector will inevitably be bearish after these cooling measures,” said analyst Adrian Loh on Friday.
Still, he noted that CLI remains a top pick as the company does not have residential exposure in Singapore.
The brokerage has maintained its “buy” call for CLI with a target price of S$4.28, as it believes the company’s current price-to-book valuation of 1.1 times for 2023 is inexpensive compared with its 2022 price-to-book value of 1.4 times.
“The company will be in a much stronger shape in 2023 as we expect China’s recovery path to be sustained given a post-Covid-19 normalisation of the economy,” said Loh.
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Furthermore, he is optimistic about CLI closing and deploying more funds over the next six months.
CLI announced two niche renminbi funds in the past week. Loh expects the company to have more such funds that are built on its proprietary niches this year.
As at the end of 2022, CLI had embedded funds under management of S$8 billion.
Apart from CLI, UOBKH cited City Developments Limited (CDL) and PropNex as property counters that would be affected by the increase in ABSD rates.
The brokerage kept its “buy” recommendation for CDL, but lowered its target price to S$8, from S$9.87. As for PropNex, UOBKH maintained a “buy” call at a target price of S$2.14.
With CDL set to launch projects such as The Myst over the next two quarters, Loh said this would be an “interesting test of the market’s demand appetite”.
He added that in the near term, property agencies such as PropNex might “face negative sentiment” due to the cooling measures.
However, UOBKH noted that share prices of CDL and PropNex had recovered quickly when cooling measures were announced in December 2021 and September 2022.
CDL’s share price regained initial losses within one to six weeks, while the PropNex counter recovered within four to six weeks.
Shares of CLI were trading down S$0.18 or 4.6 per cent at S$3.70 as at 1.03 pm on Friday. CDL was up S$0.04 or 0.6 per cent at S$6.95, and PropNex tumbled S$0.82 or 40.8 per cent to S$1.19.
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