Property stocks remain weak, with City Developments (CDL) and UOL Group hitting new one-year lows. CDL has reached its lowest point since the Global Financial Crisis. This trend is not unique to CDL. Hong Fok Corporation, Ho Bee Land H13 and Wing Tai Holdings W05 are also facing pressure. The price action in these stocks may signal deteriorating fundamentals.
The reasons could be fourfold. First, the developers’ own balance sheets are not liquid. This missive has repeatedly indicated that P/NAV discounts are not the only valuation yardsticks for developers. Balance sheet liquidity, value growth in the form of earnings, and positive operating and free cash flow are some other metrics some investors look at.
Secondly, concerns about land costs, construction costs, and demand and supply are giving investors second thoughts on P/NAV discounts as the NAV part continues to fall.
Third, going overseas has proven to be a lot more challenging than initially envisaged as the only advantage or local developers in markets like the UK was their access to lower-cost debt.
The fourth reason is Johor, specifically the Singapore-Johor Special Economic Zone. Already, data centre oversupply is becoming a concern. To recall, Iskander was a popular theme, with lashings of property offerings.
On the demand-supply front, CBRE says: “Chilly winds continued to blow at the URA tender closings on June 19 for the residential site at River Valley Green Parcel A (380 units) and the hybrid site at Upper Thomson Road Parcel A (540 residential units and 100 long-stay serviced apartment units).”
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The lacklustre showing at tenders underscores heightened cautiousness among developers amid tepid foreigner demand due to cooling measures, tentative buying sentiment and protracted economic uncertainty, with anticipated delays in the timeline for US interest rate cuts, CBRE adds.
For the River Valley site, CBRE highlights possible oversupply: “Developers are probably cautious due to its prime location — it will likely have a high price point and an investor or foreigner focus and there is also ample new supply around it, with Zion Road Parcel A with over 1,000 units and Zion Road Parcel B and River Valley Green Parcel B in the Reserve List.”
CBRE indicates that the Upper Thomson Road and Lentor area could also be oversupplied.
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Further downside objectives
For CDL, the break below the thrice-tested $5.60 level indicates a downside of around $5. Based on its chart pattern, Hong Fok is at a several-times tested support at 82 cents. A break below this level indicates an initial downside of around 54 cents, coinciding with the Covid-19 low of 53 cents.
Wing Tai’s support is at the twice-tested $1.38 level. While short-term indicators are near oversold levels, quarterly momentum has declined after an unsuccessful attempt to break above its equilibrium line. A break below $1.38 would cause prices to ease towards $1.20.
Ho Bee Land rebounded off the confluence of its 100- and 200-day moving averages at $1.81 on June 19. In its annual report, Ho Bee Land says it owns eight office buildings in London, representing an investment of GBP1.7 billion ($2.9 billion), with rental income remaining “stable” at GBP91.6 million in FY2023 compared to GBP92.2 million in FY2022. Since its operating cash flow in FY2023 was around $380 million, it should be able to refinance the $479 million in debt due this calendar year.
