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CIMB-GK RESEARCH, Aug 18
URA released the new private home sales data for July 2009 on Monday. The sector saw 2,767 new private homes sold in the month, the highest since the data was collated in 1996. Year-to-date, 10,117 units were sold, more than 2x that of sales for the whole of 2008. If this momentum continues, 2009 could see new private home sales matching or even exceeding that of 2007, when over 14,000 units were sold.
While property buying continues to centre on the mass mid-tier markets, we noticed a distinct increase in appetite for higher-end properties as revealed by the July numbers. Transactions in July within the Core Central Region, as classified by URA, formed 18 per cent of total demand, a proportion somewhat similar to previous months.
However, demand for units priced over S$1,500 per square foot (psf) have risen in July, forming over 23 per cent of total take-up versus an average of 6 per cent in H1.
Notable new launches that saw very favourable take-up were Volari (85 per cent sold, average selling price: S$2,060 psf), Sophia Residences (72 per cent sold, ASP: S$1,600 psf) and Ferrell Residences (50 per cent sold, ASP: S$1,680 psf).
Buying interest was also evident in existing luxury projects still unsold such as Hamilton Scotts, Reflections at Keppel Bay, Orchard Residences and The Marina Collection at Sentosa Cove.
On the ground, we noticed a renewed interest for private properties from foreign buyers and local investors. More foreigners, particularly Indonesians and Chinese are seen in showflats while long queues witnessed for new property launches also suggests that investor or speculator interests in properties have returned.
The URA data for July appears to corroborate these views. The proportion of buyers with a private address has increased considerably since February, forming over 60 per cent of total demand currently. Based on URA data, we also estimate that foreign buyers for private properties now account for 11 per cent of total demand in July, a marked improvement from Q1.
We continue to like the fact that unsold inventory has been significantly worked down in the sector. Accounting for the latest July URA figures, we estimate that total unsold inventory in the system has now fallen to around 35,000 units, a level seen back in 2006. This is substantially below the peak of Q2 2008, when unsold inventory was just below 45,000 units. Assuming an average demand of 8,000 units per year, current unsold inventory will take around 4.3 years to digest.
Bear in mind that URA's estimate of unsold inventory includes over 23,000 units without written pre-requisites to sell, including en-bloc units that have been rented out. Excluding this, we estimate current saleable units to amount to 1.6 years of average demand per year, or around 13,000 units.
Record transaction volumes and public hints of possible government interventions are always hallmarks of a peak property cycle. That said, the buying momentum appears to be unabated as anecdotal evidence suggests that demand for new properties remains strong even as we enter the Hungry Ghost month in August. Meanwhile, the fear factor has subsided and mortgage rates are close to historical lows.
These factors are the twin pillars that will keep asset prices at current lofty levels, even as the economy takes a while to recover. We remained focused on the positives for now, as rising property demand and prices will continue to allow developers to lighten their balance sheets and improve cashflows.
We maintain our 'neutral' call on the sector simply because of our negative stance on heavily weighted CapitaLand ('underperform', TP: $3.44). We continue to like purer residential developers in Singapore as they are more likely to benefit from country-specific positives (such as the opening of the resorts) rather than just the theme of ample liquidity.
City Developments ('outperform', TP: $11.76), Allgreen
Properties ('outperform', TP: $1.38) and Ho Bee Investment ('outperform', TP:
$1.59) remain our top big-, mid- and small-cap picks in the sector.
Sector - NEUTRAL
Wilmar International
Aug 18 close:
S$6.28
DBS GROUP RESEARCH, Aug 18
Q2 2009 earnings were stronger than expected. Strong margins on palm and lauric merchandising and processing (M&P) and consumer products boosted earnings, despite easing oilseeds M&P margin and lower associates contribution.
We have upgraded our forecasts for 2009 and 2010 full-year earnings by 13.2 per cent and 12.5 per cent. We raised our assumption of palm and lauric M&P margin to 5.8 per cent from 4.4 per cent) but reduced that for oilseeds M&P to 7.0 per cent from 7.7 per cent. We also raised consumer products' margin assumption to 7.0 per cent from 2.8 per cent, in the light of the stronger-than expected performance.
We
raise our target price to $7.25 from $6.10, and reiterate our 'buy'
call.
BUY
Compiled by CONRAD TAN
Glossary:
Ebit - earnings before interest and tax
Ebitda -
earnings before interest, tax, depreciation and amortisation
EPS -
earnings per share
FY - fiscal/financial year
H1, H2 - first or
second half
NAV - net asset value
9M - nine months
P/B -
price/book value (ratio)
PE - price/earnings (ratio)
Q1, Q2, Q3 -
first, second, or third quarter
q-o-q - quarter-on-quarter
RNAV -
revised net asset value
ROE - return on equity
TP - target price
y-o-y - year-on-year
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein. Brokers who wish to send in their reports can e-mail us at
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