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29-08-2011, 04:14 AM
Business Times - 29 Aug 2011
Property shares trading way below RNAVs
Discounts of up to 48% may grow bigger if analysts cut their expectations
By UMA SHANKARI
PROPERTY stocks are now trading at discounts of up to 48 per cent off their revalued net asset values (RNAVs) after taking a beating in recent weeks.
The discounts could grow even bigger as share prices may fall further in coming weeks if analysts pare their expectations of property prices, rents and volumes.
Data compiled by CIMB Research showed that, as at last Friday, the eight largest developers in Singapore by market capitalisation were trading at discounts of between 15 per cent and 48 per cent off their RNAVs.
The three developer stocks trading at the largest discounts to their RNAVs were CapitaLand (48 per cent discount to RNAV), Singapore Land (47 per cent) and Keppel Land (45 per cent).
Similarly, Nomura Singapore also noted last Friday that the five major developer stocks that it tracks traded at discounts of between 17 per cent and 52 per cent as compared to their RNAVs. The research firm used Thursday's closing prices.
'Property stocks have underperformed the broader market year-to-date but discounts to RNAV are not at unprecedented levels,' said CIMB analyst Donald Chua.
In the last global financial crisis (2008-2009), developer stocks traded at an average of 45-60 per cent discounts to implied asset prices while S-Reits traded at yields of more than 10 per cent, he said.
'Share prices have yet to reach those levels,' Mr Chua said. 'We see downside to residential prices and volumes, which will translate to further downside in share prices for developers.'
But despite the potential downsides, there are good bargains to be found, analysts noted. This is especially so as developer stock prices have fallen significantly since the start of the year.
'Valuations are inexpensive and have factored in much of the sector headwinds and anticipated price correction,' DBS Vickers analyst Lock Mun Yee said in a recent report.
Analysts also noted that Singapore-listed real estate investment trusts, or S-Reits, are also trading at compelling yields.
'The current yield gap between S-Reits and the 10-year government bond is attractive to us at 5.1 percentage points versus 0.8 percentage point during the 2007 boom, and an average of 3.4 percentage points over the past seven years,' noted Royal Bank of Scotland analysts Bryan Lim and Fera Wirawan in a report last week.
The report put S-Reits yields for 2011 and 2012 at 6.7 per cent and 7.1 per cent respectively. The high yields now being provided by S-Reits are well supported by a stable rental outlook, low interest costs and acquisitive growth potential, the RBS analysts said.
Most research houses are generally more positive on S-Reits than developer stocks. CIMB, for example, is 'neutral' on developers as a whole but 'overweight' on S-Reits. RBS also has an 'overweight' call on the S-Reit sector.
But Nomura Singapore analyst Sai Min Chow said that one of the current concerns of investors in the Reits space is the potential risk of recapitalisation if asset values were to fall significantly.
Property shares trading way below RNAVs
Discounts of up to 48% may grow bigger if analysts cut their expectations
By UMA SHANKARI
PROPERTY stocks are now trading at discounts of up to 48 per cent off their revalued net asset values (RNAVs) after taking a beating in recent weeks.
The discounts could grow even bigger as share prices may fall further in coming weeks if analysts pare their expectations of property prices, rents and volumes.
Data compiled by CIMB Research showed that, as at last Friday, the eight largest developers in Singapore by market capitalisation were trading at discounts of between 15 per cent and 48 per cent off their RNAVs.
The three developer stocks trading at the largest discounts to their RNAVs were CapitaLand (48 per cent discount to RNAV), Singapore Land (47 per cent) and Keppel Land (45 per cent).
Similarly, Nomura Singapore also noted last Friday that the five major developer stocks that it tracks traded at discounts of between 17 per cent and 52 per cent as compared to their RNAVs. The research firm used Thursday's closing prices.
'Property stocks have underperformed the broader market year-to-date but discounts to RNAV are not at unprecedented levels,' said CIMB analyst Donald Chua.
In the last global financial crisis (2008-2009), developer stocks traded at an average of 45-60 per cent discounts to implied asset prices while S-Reits traded at yields of more than 10 per cent, he said.
'Share prices have yet to reach those levels,' Mr Chua said. 'We see downside to residential prices and volumes, which will translate to further downside in share prices for developers.'
But despite the potential downsides, there are good bargains to be found, analysts noted. This is especially so as developer stock prices have fallen significantly since the start of the year.
'Valuations are inexpensive and have factored in much of the sector headwinds and anticipated price correction,' DBS Vickers analyst Lock Mun Yee said in a recent report.
Analysts also noted that Singapore-listed real estate investment trusts, or S-Reits, are also trading at compelling yields.
'The current yield gap between S-Reits and the 10-year government bond is attractive to us at 5.1 percentage points versus 0.8 percentage point during the 2007 boom, and an average of 3.4 percentage points over the past seven years,' noted Royal Bank of Scotland analysts Bryan Lim and Fera Wirawan in a report last week.
The report put S-Reits yields for 2011 and 2012 at 6.7 per cent and 7.1 per cent respectively. The high yields now being provided by S-Reits are well supported by a stable rental outlook, low interest costs and acquisitive growth potential, the RBS analysts said.
Most research houses are generally more positive on S-Reits than developer stocks. CIMB, for example, is 'neutral' on developers as a whole but 'overweight' on S-Reits. RBS also has an 'overweight' call on the S-Reit sector.
But Nomura Singapore analyst Sai Min Chow said that one of the current concerns of investors in the Reits space is the potential risk of recapitalisation if asset values were to fall significantly.
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