SINGAPORE (Feb 8): OCBC is maintaining its “buy” call on Wheelock Properties with $2.27 fair value as it believes the property stock is still attractively valued despite the recent rally.
Year to date, Wheelock shares have risen an impressive 16.2%, alongside a 12.3% rally in the sector over the same period.
In a Tuesday note, lead analyst Eli Lee says the aggressive rally in property stocks was kindled from long depressed valuations across the sector and rising anticipation of potential removal of curbs ahead.
In addition, with 2016 primary home sales rising 7.2% y-o-y to 8,000 units, a soft landing scenario for the domestic residential sector now appears increasingly realistic.
Finally, developers with significant majority shareholders, particularly those trading at sizeable discounts to book, continue to appeal to investors seeking likely privatisation candidates, says Lee.
Wheelock’s parent, Wheelock and Co. in Hong Kong, holds 76.2% of the company.
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“With the confluence of these reasons and Wheelock’s relatively limited trading liquidity, Wheelock’s rally has outpaced that of the sector,” says Lee.
That said, even at current levels, the company’s shares are still trading at an undemanding 0.68x price-to-book which Lee deems to be attractive given the strength of its balance sheet and portfolio of quality investment assets.
“We expect the company to report a healthy set of 2016 results in the coming weeks mainly due to relatively firm sales at Ardmore Three and The Panorama and contributions from Phase 1 of the Fuyang project in China which was ready for handover in 4Q16,” says Lee.
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To recap, in the 9M16 ended Dec, Wheelock’s PATMI rose 81.2% y-o-y to $74.8 million while revenue over the period similarly increased 107.1% y-o-y to $545.4 million from higher home sales.
Key investment assets, Wheelock Place and Scotts Square Retail, continued to enjoy close to full occupancy rates.
“Sitting on a net cash position, we see the group being in a solid financial position to ride out the current down-cycle,” says Lee.
Shares of Wheelock are trading 1 cent higher at $1.77.
