SINGAPORE (July 9): Maybank Kim Eng is downgrading its property sector weighting to “neutral” from “overweight” on the belief that the overhang on Singapore’s growth outlook and risk of further cooling measures will weigh heavily on the residential sector’s performance through 2H18.
The research house has downgraded four developers – City Developments (CDL), GuocoLand, Bukit Sembawang and Oxley Holdings – to “hold” from “buy” previously with lower target prices of $10.40, $2, $5.10 and 34 cents, respectively.
UOL, CapitaLand and Ho Bee Land continue to be rated at “buy” albeit with the lower respective target prices of $8.95, $3.80 and $3.05.
Maybank’s sector re-rating comes after sooner- and greater-than-expected tightening measures were introduced to the property market last week, which its analyst Neel Sinha likens to a “sucker punch” to the past year’s buoyant en-bloc market and rising home prices.
See: Singapore raises ABSD, tightens LTV after strong property price gains
“This begs the question whether regulators now foresee greater economic uncertainly and headwinds from global macro and trade war-related factors versus a few months ago. The new measures are designed to temper investment demand (est. at around half of total) with higher ABSD requirements and LTV limits for buyers,” comments Sinha in a Monday report.
“The latest property tightening effectively kills one of the catalysts that we were initially looking for to drive a moderate recovery in the latter part of the year (which is now likely to contribute to prolonging the current weakness in the market)… But, on the flipside, it should also moderate future supply shocks by cooling new unit creation through the introduction of a new non-remittable ABSD for developers,” he adds.
While Sinha believes some developer stock valuations appear undemanding post the 13% YTD selloff, he believes the new tightening measures are now likely to contribute to a prolonged market weakness as opposed to Maybank’s earlier expectations of a modest performance recovery in 2H.
With the trimming of Maybank’s developer weighting, it has also turned “neutral” from “underweight” on telecoms & media on the belief that the de-rating has largely priced in the industry’s fourth operator risk.
The research house is maintaining “overweight” on financials, but highlights the possibility of some tail risk from a slowdown in new housing loan growth.
As it is, Maybank’s sensitivity analysis for a flat y-o-y housing loan book for 2018, versus a forecast 7.5-9.9%, would result in an EPS impact of 2-2.3% to its existing base case FY18 forecasts for banks.
“That said, the unknown wild cards lie in the competitive behaviour of the banks and whether they try and offset slower housing loan growth through pricing adjustments in a rising interest rate environment,” says Sinha.
