Citi Research analyst Brandon Lee has named City Developments Limited C09 (CDL) as his top pick among the Singapore-listed developers due to its valuations.
Lee’s flash note, dated June 26, comes after the government reduced the total supply of private housing in the 2H2024 government land sales (GLS) programme by 9% to 8,140 units across 19 sites.
This is the first semi-annual decrease after four consecutive increases in supply since 2H2022, notes Lee.
Of the 8,140 units, 5,050 units are on 10 sites on the confirmed list while the remaining 3,090 units are across nine sites on the reserve list. The confirmed list refers to sites that are launched for sale at pre-determined dates and most land parcels are sold through tenders. The reserve list refers to sites that are not released for tender immediately. These are, instead, made available for application. A site on the reserve list will be put up for tender when a developer has submitted a minimum price which is accepted by the government.
The non-residential supply under the 2H2024 GLS programme, which comprises 113,650 sqm (1.2 million sq ft) of commercial space and 530 hotel rooms, is relatively unchanged from 1H2024.
The programme released three sites at Punggol Walk, Woodlands Avenue 2 and River Valley Road, as well as an additional white site at Marina Gardens Crescent, which was added to the reserve list. The Marina Gardens Crescent site was previously on the confirmed list of the 1H2023 GLS programme, but was not awarded as the sole bid of $770.5 million or $984 psf in January by a Guocoland-led consortium was deemed to be too low.
See also: OCBC, citing potential recovery, initiates coverage on Nanofilm with tentative 'hold' call
To Lee, the reduction in housing supply from the latest GLS programme came as no surprise given the softening land prices and muted demand of an average of three bids for eight sites tendered year to date.
That said, the total supply in 2024, which remains at a 10-year high, should lead to subdued demand for most sites except for those at Bayshore Road, Chencharu Close and Holland Link due to the scarcity factor, says the analyst. A total of 17,050 units were introduced so far this year.
Meanwhile, the injection of new sites at Lentor, River Valley and Media Circle suggests that land prices in these areas may see “greater downside pressure” on the back of upcoming nearby tenders and existing and, or soon-to-launch projects with unsold units, notes Lee.
See also: Macquarie revises Singapore earnings growth for FY2024 to 7% from 3%
However, he adds that there may be limited impact to property prices given Singapore’s low unemployment rate, healthy growth in wages and peaking mortgage rates.
Furthermore, he points out that land supply alone has shown historically that it does not result in a decline in prices.
Lee has kept his “buy” call on CDL with an unchanged target price of $9.51, which is set at a 40% discount to his revalued net asset value (RNAV) of $15.85. “[This is] near where it traded at during the past few residential downcycles triggered by cooling measures,” Lee writes. CDL has put its RNAV at $19.46 which includes the revaluation surpluses of its investment properties and hotels.
“Our key assumptions include: residential: 2%/2%/2% rise in Singapore prices in FY2024/FY2025/FY2026; office: flat cap rate changes and -5/-3/+5% in Singapore Grade A rents in FY2024/FY2025/FY2026; hospitality: flat cap rate changes and 3%/4%/5% rise in FY2024/FY2025/FY2026 revenue per available room (RevPAR); and retail: flat cap rate changes and 0.5% - 2% rise in Singapore rents,” he ends.
As at 1.47pm, shares in CDL are trading 4 cents lower or 0.75% down at $5.30.
