Published July 9, 2007


Analysts upbeat about property companies' results

Contributions from residential projects seen boosting bottom line


ANALYSTS expect property companies listed in Singapore to report a good set of financials in the coming results season as they continue to recognise contributions from their residential businesses.

'The results should be better than last year's because the profits that the developers book from their projects should improve progressively,' said David Lum, an analyst at the Daiwa Institute of Research.

In addition, if developers decide to revalue their portfolios, they will also see paper gains because of rising capital values, Mr Lum said.

Other analysts were similarly upbeat about property companies here, with several research firms reiterating 'buy' calls on major property stocks as well as 'outperform' ratings on the Singapore property sector after data from the Urban Redevelopment Authority (URA) last week showed that private home prices rose 7.9 per cent in the second quarter of the year - the biggest quarter-on-quarter gain in about seven years.

Citigroup analyst Wendy Koh noted that the price climb reflected 'strong genuine demand' as it was accompanied by rising transaction volumes in the secondary market.

Ms Koh is upbeat about the prospects of Allgreen, Wing Tai and City Developments, and has 'buy' calls on all three stocks.

Singapore's largest developer by market capitalisation, CapitaLand, was, however, rated a 'sell' by Citigroup.

Among other things, the stock was not favoured for its significant exposure to property development in China as any government policy changes there could have an impact on the group, Ms Koh said.

On the other hand, Daiwa's Mr Lum has 'sell' calls on both CapitaLand and City Developments as the market is now pricing them too high, he said. However, he expects both companies to post better earnings for the half-year on the back of improved earnings from their residential businesses in Singapore.

Smaller property stocks have also been drawing interest of late on the back of an upbeat property market, with several seeing their fair values and earnings estimates bumped up by analysts.

For one, Low Keng Huat, which is better known for its construction business, is also set to benefit from increasing property prices, said UOB Kay Hian.

'With property prices in the mid-tier market starting to pick up, we are raising our estimated selling price for an upcoming project on the Minton Rise site to $750 per square foot (psf),' said UOB Kay Hian analyst Mark Tan, who has a 'buy' call on the stock. 'Latest transactions for existing developments in the area are in the region of $600-$650 psf.'

The latest data from the URA showed that mass market home prices climbed 7.9 per cent over the second quarter.

Meanwhile, analysts have warned that the risk of government intervention in the property market has risen even higher now, as there is a concern that the rate of price inflation might not be sustainable.

'The government also appears to be worried and has taken the step to warn buyers that it is monitoring the market closely, presumably for speculation,' said OCBC Investment Research analyst Winston Liew.

'Furthermore, it recently also released much more land than expected. Under such a situation, we see the risk of government intervention as having risen and actions to preempt problems cannot be ruled out.' He has a 'neutral' call on the property sector.