Brokers' take: OCBC, UOBKH, RHB retain 'buy' on certain property players despite fresh cooling measures

DESPITE anticipating negative knee-jerk reactions on the share prices of property players following Wednesday's (Dec 15) earlier-than-expected round of cooling measures, several brokerages went against the grain to retain their "buy" ratings on some of these stocks.

This comes as the brokerages - OCBC Investment Research and UOB Kay Hian (UOBKH) - see limited downsides to the current share prices of several property developers given their cheap valuations to begin with.

UOBKH analyst Adrian Loh said in his note on Friday (Dec 17) that the share prices of Singapore's property developers and agencies "should stabilise in the near term" as their valuations were "not stretched" heading into these new cooling measures.

Maintaining "overweight" on the property sector heading into 2022, he added: "We believe that the market will adjust to the new normal, backed by firm economic fundamentals."

OCBC's research team said in a sector update on Thursday (Dec 16) initial share price reactions from Thursday already appeared milder than those elicited by the July 2018 round of cooling measures, partly because valuations of developers are cheaper today compared to then.

OCBC cited the FTSE ST Real Estate Holdings and Development Index trading at a forward price-to-book ratio of 0.55 times as at the close on Dec 15, which is 0.8 standard deviation below the 10-year average of 0.68 times.

The forward price-to-book ratio for the sector was 0.6 times on Jul 5, 2018, a day before the previous round of cooling measures came into effect, the research team noted.

Nevertheless, there is RHB, which took a more conservative approach and downgraded its rating on the sector from "overweight" to "neutral" on Dec 16 as it expects the cooling measures to sharply affect near-term sale volumes and slow down the price momentum.

RHB analyst Vijay Natarajan, however, retained "buy" on City Developments Limited (CDL), citing a preference for "diversified" developers and real estate investment managers.

He added that factors such as low inventory levels, the improving job market, and strong local demand will support the sector.

Here are their takes on specific stocks.

CITY DEVELOPMENTS

RHB set a target price of S$9 for CDL C09 , which represents 32.7 per cent upside from the counter's closing price of S$6.78 on Friday (Dec 17). The counter traded down 1.5 per cent or S$0.10 for the day.

While the cooling measures will present CDL with a "slight negative impact", Natarajan said the property development company's strong unbilled sales from launched projects, as well as recovery in the investment property and hospitality segment "provides cushion".

He added that the stock was also trading at a steep discount of 60 per cent to its revalued net asset value. This indicates to him that most of the negatives were likely priced in.

UOB's Loh also retained his "buy" rating on CDL, with a target price of S$8.50. At this target price, CDL would trade at an estimated price-to-book ratio of 0.9 times in FY2022, which Loh believes is "fair".

He further noted that CDL's valuations "appear inexpensive".

The brokerage's estimated price-to-book value of 0.7 times in FY2022 for the share is more than 1.5 standard deviations below its 5-year price-to-book average of 0.92 times, he said.

Its estimated price-to-earnings ratio in FY2022 of 15.1 times is a 14 per cent discount to the company's past-5-year average of 17.5 times, he added.

CAPITALAND INVESTMENT

OCBC believes investors can seek shelter in CapitaLand Investment 9CI in this period, pointing out that it would be "relatively unscathed" from this round of cooling measures following its recent corporate restructuring where its property development arm has been privatised.

The research house set a target price of S$3.83 for the counter, which represents a potential upside of 11 per cent from its closing price of S$3.44 on Dec 15.

Shares of the counter closed down 1.7 per cent or S$0.06, at S$3.37 on Friday (Dec 17).

UOL GROUP

OCBC believes any overreaction in UOL Group's U14 share price would provide a good entry point, given its cheap valuations, strong management team and solid balance sheet.

Noting the group's net gearing of 0.29 times as at Jun 30, the research house gave it a "buy" rating with a target price of S$9.27, a potential upside of 31 per cent from its share price of S$7.10 as at the close on Dec 15.

Shares of the counter closed down 0.3 per cent or S$0.02 , at S$7.02 on Friday (Dec 17).

APAC REALTY

RHB expects real estate agencies to be harder hit than the property developers, and gave a "neutral" rating for APAC Realty CLN , with a target price of S$0.90, anticipating that its share price may fall within the range of plus or minus 10 per cent over the next 12 months.

ERA Realty, one of the largest real estate agencies here with more than 8,100 agents under its watch, is APAC Realty's wholly-owned subsidiary.

The target price represents a 32.4 per cent upside from its share price of S$0.68 at Friday's (Dec 17) close. The counter traded down 0.7 per cent or S$0.005 for the day.

These are based on Natarajan's beliefs that the impact of the cooling measures will likely be more pronounced on the mass market segment.

He said buyers and investors in this segment are "more sensitive" to additional cost outlays in the form of additional buyer's stamp duty and tighter total debt servicing ratio limits.

He noted, based on anecdotal evidence, that investment demand accounts for about 40 per cent of total demand. Wednesday's measures are more targeted towards this group, he added.

PROPNEX

Despite RHB's poor outlook on APAC Realty, UOB's Loh maintained a "buy" rating on PropNex OYY , with a target price of S$2.17.

This is based on a target price-to-earnings multiple of 12.6 times, which is 2 standard deviations above the company's historical price to earnings average of 6.8 times.

Loh pointed out that its estimates for 2021 and 2022 were unchanged as he had not factored in any earnings from its en bloc efforts.

Given the company's huge cash pile of S$123.7 million as at the end of 2021's third quarter, which equates to S$0.33 per share, Loh noted that its ex-cash price-to-earnings ratio is only 9.5 times. Loh views this as "inexpensive".

PropNex shares closed down 0.6 per cent or S$0.01, at S$1.70 on Friday (Dec 17).

SEE ALSO:

• Investors, foreigners, en bloc hopefuls to bear brunt of new property cooling measures
• New cooling measures overturn sanguine outlook for new private home market for 2022
• Quick takes: How might fresh cooling measures affect Singapore's property market?