SINGAPORE (Mar 18): OCBC Investment Research is maintaining “neutral” on Singapore’s residential sector despite the recent recovery in Singapore developers’ stock prices and the announcement of a new Cross Island MRT line, which helped to boost Feb m-o-m private home sales volumes by 4.4%.
The research house’s preferred sector picks remain UOL Group and CapitaLand, which are both rated “buy” with fair value estimates of $8.45 and $3.98, respectively.
In a Monday report, analyst Andy Wong says he nonetheless remains wary of the near-term outlook due to a softer macroeconomic outlook and sizeable launches expected this year, which he foresees to possibly stymie price growth even as transaction volumes are expected to gather momentum going forward.
He sees the upcoming launch of Sim Lian Group’s 2203-unit Treasure at Tampines – Singapore’s largest condominium project – as a “big litmus test for the market” given its massive scale.
“We visited [Treasure’s] showflat over the weekend, and noticed a decent crowd size. In terms of valuation for the sector, the FSTREH (ST Real Estate holding and Development Index) is trading at a forward P/B ratio of 0.57 times, which is 1.5 standard deviations below its 10-year average of 0.78 times,” says Wong.
“During our strategy report in Dec, we had highlighted that valuations for Singapore developers were cheap, and hence this share price recovery does not surprise us. However, we remain wary of the near-term outlook,” he adds.
As at 1.17pm, shares in UOL Group and CapitaLand are trading at $6.55 and $3.47, respectively.
