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<TABLE cellSpacing=0 cellPadding=0 width=452 border=0><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published April 9, 2009
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Brokers' Take
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Property Sector
OCBC INVESTMENT RESEARCH, April 8
DEVELOPERS outperformed in the recent market rally. After hitting a 52-week low on March 9, the Straits Times Index has since recovered strongly and gained 24 per cent to Tuesday's close of 1,802.39. The FTSE-ST Real Estate Holding and Development Index outperformed the STI and gained 31.1 per cent over the same period. Gains were largely driven by the large and mid-cap developers as their share prices increased by an average of 24.5 per cent and 24.2 per cent respectively. Among the large-cap developers, gains were not widespread, with CapitaLand, City Developments and Keppel Land being the best performers. Small-cap developers continued to underperform the real estate holding and development sector index, gaining 14.4 per cent during the period, as the market remains cautious over the health of their balance sheets and financing capabilities.
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</TD></TR></TBODY></TABLE>Last week, URA's release of its Q1 flash estimate for the private property price index showed that property prices fell by 13.8 per cent q-o-q, which is a record quarterly decline since the index was started in 1975. A sharp decline in prices had brought improvement in developers' sales figures in Q1, but we believe that this could be driven by pent-up demand in the market after months of slowing sales and also, the narrowing price gap between HDB flats and mass market properties. Sustainable demand will still have to depend on the economy, wages and unemployment, which are still looking fragile at the moment.
In light of the recent run-up in share prices of property developers, we now re-look our ratings for the developers. With no catalyst in sight for a sustainable recovery in the property market, we prefer to remain conservative and maintain the current discount rates (30 per cent for CapitaLand and City Developments, 40 per cent for UOL Group, 50 per cent for Soilbuild and 60 per cent for Keppel Land) to our valuations of the developers' residential projects, landbank and investment properties. Differences in discount rates reflect our perception of risk exposure of the developers and the differences in their balance-sheet strengths. However, we have adjusted our fair value of the developers to reflect the change in the market valuation of their investments in listed property trusts and companies. We maintain 'buy' ratings for UOL Group and Soilbuild, and 'hold' for City Developments. As we see limited share-price upside potential for CapitaLand and Keppel Land, we are now downgrading them to 'hold'.
Sector - NEUTRAL
Singapore Press Holdings
Apr 8 close: $2.65
DBS GROUP RESEARCH, April 8
WE expect SPH's Q2 2009 operating profit to fall some 12 per cent y-o-y to just about $103 million.
This is based on a 17 per cent drop in advertising revenue and high newsprint charge-out rate, offset by higher property contributions. We reiterate our belief that the share price has factored this in. Despite rebounding by 13 per cent since our upgrade on March 13, the share price is still down by 20 per cent year to date.
We think an interim dividend of eight cents, similar to H1 2008, can be expected. TP remains at S$2.93.
BUY
Parkway Life Reit
Apr 8 close: $0.72
DMG & PARTNERS SECURITIES, April 7
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</TD></TR></TBODY></TABLE>PARKWAY Life Reit is the only real estate investment trust that pegs its rental revenue growth to the consumer price index (CPI), with a minimum growth of one per cent. In an economic downturn where CPI is negative, P-Reit's rental revenue from its Singapore properties would still grow by the minimum one per cent. Of its 10 Japanese properties, the lease structures for three nursing homes are linked to Japan's inflation, while rental from the other Japanese assets would be reviewed every few years, to reflect market rates. The agreement with lessees is that rent revision would take place only if the market rates are higher; otherwise, rentals will remain unchanged. Hence, its unique lease structure offers revenue-downside protection, and provides a stable dividend payout.
There is no refinancing risk in the next 24 months, as the next refinancing requirement will be in 2011. Its low gearing of 23 per cent at end-2008 allows P-Reit headroom to take on debt to expand its portfolio through acquisitions. It would be able to take on another $300 million of debt before it reaches a gearing of 40 per cent, and $990 million before it hits 60 per cent gearing. P-Reit's current portfolio consists of 80 per cent Singapore assets and 20 per cent Japan assets. Management highlighted that Singapore will remain its core focus, but it does not rule out seeking acquisitions in countries such as China, India or Australia, for mature assets that are yield accretive.
We have a target price of $1.01 for P-Reit. We feel that P-Reit deserves a premium over its peers, for its defensive nature and the revenue-downside protection that its lease structure offers.
BUY
</TD></TR></TBODY></TABLE>
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Brokers' Take
<TABLE class=storyLinks cellSpacing=4 cellPadding=1 width=136 align=right border=0><TBODY><TR class=font10><TD align=right width=20>
</TD><TD>Email this article</TD></TR><TR class=font10><TD align=right width=20></TD><TD>Print article </TD></TR><TR class=font10><TD align=right width=20></TD><TD>Feedback</TD></TR></TBODY></TABLE>Property Sector
OCBC INVESTMENT RESEARCH, April 8
DEVELOPERS outperformed in the recent market rally. After hitting a 52-week low on March 9, the Straits Times Index has since recovered strongly and gained 24 per cent to Tuesday's close of 1,802.39. The FTSE-ST Real Estate Holding and Development Index outperformed the STI and gained 31.1 per cent over the same period. Gains were largely driven by the large and mid-cap developers as their share prices increased by an average of 24.5 per cent and 24.2 per cent respectively. Among the large-cap developers, gains were not widespread, with CapitaLand, City Developments and Keppel Land being the best performers. Small-cap developers continued to underperform the real estate holding and development sector index, gaining 14.4 per cent during the period, as the market remains cautious over the health of their balance sheets and financing capabilities.
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In light of the recent run-up in share prices of property developers, we now re-look our ratings for the developers. With no catalyst in sight for a sustainable recovery in the property market, we prefer to remain conservative and maintain the current discount rates (30 per cent for CapitaLand and City Developments, 40 per cent for UOL Group, 50 per cent for Soilbuild and 60 per cent for Keppel Land) to our valuations of the developers' residential projects, landbank and investment properties. Differences in discount rates reflect our perception of risk exposure of the developers and the differences in their balance-sheet strengths. However, we have adjusted our fair value of the developers to reflect the change in the market valuation of their investments in listed property trusts and companies. We maintain 'buy' ratings for UOL Group and Soilbuild, and 'hold' for City Developments. As we see limited share-price upside potential for CapitaLand and Keppel Land, we are now downgrading them to 'hold'.
Sector - NEUTRAL
Singapore Press Holdings
Apr 8 close: $2.65
DBS GROUP RESEARCH, April 8
WE expect SPH's Q2 2009 operating profit to fall some 12 per cent y-o-y to just about $103 million.
This is based on a 17 per cent drop in advertising revenue and high newsprint charge-out rate, offset by higher property contributions. We reiterate our belief that the share price has factored this in. Despite rebounding by 13 per cent since our upgrade on March 13, the share price is still down by 20 per cent year to date.
We think an interim dividend of eight cents, similar to H1 2008, can be expected. TP remains at S$2.93.
BUY
Parkway Life Reit
Apr 8 close: $0.72
DMG & PARTNERS SECURITIES, April 7
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There is no refinancing risk in the next 24 months, as the next refinancing requirement will be in 2011. Its low gearing of 23 per cent at end-2008 allows P-Reit headroom to take on debt to expand its portfolio through acquisitions. It would be able to take on another $300 million of debt before it reaches a gearing of 40 per cent, and $990 million before it hits 60 per cent gearing. P-Reit's current portfolio consists of 80 per cent Singapore assets and 20 per cent Japan assets. Management highlighted that Singapore will remain its core focus, but it does not rule out seeking acquisitions in countries such as China, India or Australia, for mature assets that are yield accretive.
We have a target price of $1.01 for P-Reit. We feel that P-Reit deserves a premium over its peers, for its defensive nature and the revenue-downside protection that its lease structure offers.
BUY
</TD></TR></TBODY></TABLE>
