City Dev upgrade to Buy

City Dev is the Singapore residential bellwether, and has the best leverage to volume recovery. In the current environment, we favor well capitalized residential developers with large land banks. Although the stock has risen considerably off its deep trough valuations earlier this year, we think that if transaction volumes can be sustained and we are indeed in the early stages of a gradual recovery, there is still substantial re-rating potential given stock still trades below mean P/B and slightly above its minus 1SD P/B range. Given City Dev’s large Singapore land bank, NAVs are sensitive to residential price changes. On our estimates, every 10% rise in residential prices increases NAV by 6%.

Since adding the stock to our Sell list on July 28, 2008, City Dev’s share price has fallen 26% vs. a 23% drop for the STI over the same time (12-month performance: -28% vs. -29%). City Dev was subsequently added to our Conviction Sell list on August 29, 2008 and removed on February 12, 2009, during which time the share price fell 47% vs. a 37% drop for the STI. We note that underperformance vs. the STI during both periods came amid an increasingly difficult operating environment for residential developers and negative headwinds for Millennium & Copthorne’s global hotel business. We believe that the risk/reward trade-off in the residential market has improved, justifying our upgrade to Buy.

We set our 12-month target price of S$10.0 at a 10% discount to our reset end-2010E NAV vs. a 30% discount previously as we think the residential sector is likely to lead the recovery. The key risk to our target price is the potentially negative news flow from City Dev’s S$1.69bn South Beach project which its Middle Eastern partners, El-Ad group and Istithmar, reportedly want to exit. We estimate that should City Dev acquire their stakes at a 25% discount, the all-in cost would raise the company’s gearing to 62% from 49% currently, which is not excessive in our view.

On its 1Q09 results, City Dev posted net profits of S$83m, down from S$165mn a year ago, mainly due to weaker contributions from property development and hotels. Results came in below expectations, registering 21% of full-year estimates (GS estimates are at the low end of consensus). The 1Q09 miss aside, the tone of the results was positive on the residential space, with the group announcing it would “fast track” its mass market project at the former Hong Leong Gardens condominium for launch in 4Q09. The results however continued to cast a shadow over the commercial space, in line with our more cautious tone for that segment, with office occupancy down to 91% compared to 94% as at the end of 2008.

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Suntec REIT: Fairly valued - downgrade to HOLD

Office rents down 35% from peak. CB Richard Ellis data showed that both prime and Grade A monthly office rents have fallen about 35% from the highs of this cycle achieved in 2Q-3Q08. 1Q09 rents of S$12.30 psf per month for Grade A (versus S$18.80 psf pm in 3Q08) and S$10.50 psf pm for prime rents (versus S$16.10 psf pm in 3Q08) have taken the market back to 2Q07 levels. Meanwhile, the Business Times reported that a 16-storey freehold office block in the CBD has been sold by a UK fund. The Parakou Building was sold for about S$81.38m or S$1280 psf of net lettable area. The transaction is at a 36% discount to the S$128m the seller paid for the property two years ago. This is the first major office transaction after a fairly subdued 4Q08-1Q09.

We maintain our stance on office. The market data jibes with Suntec, which reported achieved rents of S$9.96 psf pm for Suntec City Office in 1Q09. In 2Q08, the manager had disclosed achieved rents in the range of S$12-15. At the results briefing, the manager had said that maintaining occupancy above the 90% level is a key priority. Negative drivers for office rents and capital values still persist, in our view: 1) excess capacity concerns; which are exacerbated by 2) a questionable demand outlook as companies rationalize their need for both existing space and planned expansions. As such, we maintain our forecast of continued rent declines for Suntec's office portfolio over FY09.

Capital value decline may drive recapitalization. With the successful refinancing of S$825m in loans maturing this year, Suntec's next refinancing requirement arises only in FY11. Our attention is on capital values - as independent valuations catch up with the market, we expect asset values to fall across the sector - increasing gearing levels. Lender and market appetite for leverage is low and we believe more S-REIT managers may launch equity issues to recapitalize REIT balance sheets.

Fairly valued. Our valuation for Suntec recognizes the need for correcting that implicit under-capitalization through additional equity - we price in an equity issue of S$500m at an issue price of S$0.70 (up from S$0.60 previously due to the recent price run up). This takes our fair value estimate for Suntec to S$0.84 (from S$0.80 previously) - or a 7% discount to our SOTP value of S$0.91. Suntec's price has increased 32% since our last report just three weeks ago. Downgrade to HOLD on valuation grounds.

HLA: 1Q09 building materials volume picking up

HLA reported 1Q09 net profit of S$23.2m, down 23% YoY, better than our expectations. Revenue rose a marginal 3% YoY to S$1.09b, as Tasek was made a subsidiary from Jan 09 after the successful takeover (Tasek was an associate in 2008).

Fewer white-goods sold. Xinfei, the consumer products group, recorded a revenue decline of 15% YoY to S$256m. 755k units of refrigerators and freezers were sold in 1Q09, 15% lower YoY. Xinfei tightened its credit to hypermarket chains and this led to some loss of business. In addition, ASP fell 6% YoY to RMB1,451.

More light-duty diesel engines sold, but heavy duty unit sales fell. The industrial products segment (incorporating diesel engines), recorded revenue expansion of 5% YoY to S$665m. 122k units of diesel engines were sold in 1Q09, down 5% YoY – due to a 48% fall in heavy duty engine sales to 4.7k units. But this was offset by a 10% increase in light duty engine sales to 62.3k units. As heavy duty engines command higher margin (versus light duty engines), overall gross margin narrowed.

The building materials group (BMG) recorded revenue growth of 64% YoY to S$146m, primarily due to the consolidation of Tasek. Granite sales rose 35% YoY to 581k MT and cement was up 17% YoY to 616k MT.

Factoring in better 1Q09 net profit and expectations of strong sales, particularly for the white-goods business and continued robustness for the BMG, we have raised our 2009 net profit forecast by 74% to S$79m.

We maintain BUY and upgrade HLA target price from S$0.73 to S$1.20, based on sum-of-the parts valuation.

City Developments: City Marathon, Not A Sprint

1Q09 Below Expectations. City Dev’s 1Q09 net profit of S$83.1m was down 50% yoy, and formed c.17% of our and consensus forecasts. This was primarily due to lower contributions from both property development and hotel operations, though the former continued to be the key earnings driver for the Group, contributing c.58% of 1Q09 PBIT. Hotel operations fell behind rental properties in PBIT contribution, as global economic conditions had a greater impact on the global hospitality market than what the industry had expected.

Sentosa Halted, West Coast Pushed Up. While the Group had earlier indicated that Quayside at Sentosa could potentially be launched this year, it has now decided to postpone this – possibly until close to or after project completion. It will instead fast-track its project at the former Hong Leong Garden condo, leveraging on the current interest within the mass-market segment.

Downgrade to HOLD, TP Raised to S$8.09. CDL has shot up c.64% since we reiterated our Buy call in February. We revise our RNAV to S$8.09 (prev S$7.59), with our new TP of S$8.09 based on parity to RNAV. We downgrade the stock to a HOLD, recommending investors take profit with an eye to buy on dips.

Wing Tai: Even Big Bird Needs To Rest

9M09 In-line, but Below Consensus. Wing Tai recorded 3Q09 net profit of S$21.4m (-23% yoy) on a 19% decline in topline to S$89.6m. 9M09 earnings of S$74.9m formed about 77% of our expectations but only c.63% of consensus. This is a 44% fall over 9M08, attributed to the drop in residential sales at VisionCrest.

Healthy Balance Sheet. Balance sheet stayed strong, with gearing at 0.44x and minimal refinancing required over the next 12 months.

Limited Catalysts. The company expects the property market to remain challenging in 2009 and will continue to be prudent in its financial management. Any potential launch is likely to be at its Ascentia Sky (Alexandra Road) project (40% stake), which has a relatively high breakeven cost of around S$1,050-1,100 psf. We expect a negative NPV for the project if launched at current market conditions. The remainder of its landbank is mainly high-end in nature, and we do not expect to see a recovery in this segment within the year.

Downgrade to Fully Valued, TP S$1.07. Share price has surged 78% since we upgraded the stock to a BUY on 18 Mar, outperforming the STI and FSTREH Index by 34% and 29% respectively. Taking into account an eye on recovery, we are now narrowing our RNAV discount further to the stock’s historical average (see next page) of 30%, from 35% previously. Our new TP is S$1.07, based on an RNAV of S$1.53 (from S$1.48). We believe the stock has overshot current market fundamentals and advise investors to take profit. Downgrade to Fully Valued.

Yanlord - Involved in massive government-endorsed project in Nanjing

Yanlord has just announced that a Yanlord-led Singapore consortium - made up of Yanlord (40%), Sembcorp Industrial Parks (30%) and Surbana Land (30%) - has signed a collaborative agreement with the Nanjing government to develop "Sino-Singapore Nanjing Eco High-Tech Island" in Nanjing. The project is split equally between the consortium and Nanjing government.

The agreement involves the development of approx. 6m sqm GFA of residential, commercial and industrial space, and will be divided up into three phases.

The project, situated on Jiangxinzhou - 6.5km from Nanjing's city centre, is Nanjing's largest foreign collaborative development.

What do we know at this stage? Not much at all as the feasibility study is still in progress. Land costs, and indeed how the consortium will be involved in the development of the project (eg whether it will be building everything or just involved in the land development for part of the project) are still uncertain at this stage.

Yanlord mentioned in the announcement that the agreement is not expected to have a material impact on asset value for the financial year 2009.

So what's the importance? a) This is a key project under the auspices of the Singapore-Jiangsu Cooperation Council. In other words, Yanlord is involved in a major project that is endorsed by both the Singapore and Nanjing governments, with two Singapore government-backed companies as its consortium partners. b) The agreement will provide certain assurance on long-term land replenishment stream at reasonable costs.

Rating. To align with our re-rating of Guangzhou R&F (target price based on a 20% premium to NAV), we have raised Yanlord's price target from S$1.95 to S$2.30 (at par with NAV of S$2.30).

Keppel Land: Surging ahead of fundamentals

Still early to call for a turnaround, in our view. While the property transaction data for April showed a gradual return of buyers towards the high-end property segment, we reckon that a majority of this demand was directed towards projects with small size units which fetched low absolute prices and also projects in which developers had re-launched at lower prices. We believe that the turnaround for high-end property developers such as KepLand has yet to come as buying sentiment still remains fragile in the high-end segment and buyers remain sensitive to pricing, which will limit the ability of developers to raise selling prices.

Extension of payment served as reminder of lingering default risk. Earlier in May, KepLand said it had extended the payment due date to an enbloc buyer of 51 units in The Suites at Central by 6 months, while receiving a monthly payment of S$0.5m during the extension period. While we reckon that buyer is committed to complete the purchase, we do see significant risk, given the large quantum of the outstanding payment (estimated: ~S$94m). Despite the recent improvement in sentiment, this incident served as a reminder of the potential default risk that developers are likely to continue to face. If the buyer fails to complete the transaction, KepLand will be able to keep the 20% downpayment, which would effectively lower the breakeven price of the units to S$1,445 psf. However, given that the last transacted for the project was around S$1,500 psf in April, the margin of safety is little and write-down may be needed for the returned units if prices continue to fall over the next 6 months. Nevertheless, impact on our valuation will not be significant as the estimated total attributable profit from this project is ~2.6% of our RNAV estimate.

Downgrading to SELL. Since we upgraded our recommendation on KepLand to BUY on 27th April, KepLand's share price had risen by 40.7%. Although the recent Rights issue had removed funding overhang and boosted KepLand's balance sheet, we believe that the recent optimism had been overdone, given our view that a turnaround for high-end developers and the recovery of the office market will still take some time. We prefer to stay conservative with our fundamental view and maintain our 50% discount to development profits and property valuations. As such, we are keeping our fair value unchanged at S$1.61, and downgrading KepLand from BUY to SELL.

SC Global: A Quiet Start

1Q09 Below. SC Global reported 1Q09 net profit of S$8.9m, down 53% yoy. This formed about 16% of our FY09 forecast and about 19% of consensus. Revenue surged 204% to S$131.2m, though this was due to the inclusion of revenue from AVJennings (AVJ) for 1Q09, which was consolidated as a subsidiary in Dec 2008.

Gearing Stays Relatively High. The Group’s balance sheet continues to be weighed down by its net debt, though net gearing did improve marginally from 2.84x in 4Q08 to 2.75x in 1Q09. The majority of its short-term debt, however, relates to AVJ, which is in advanced negotiations for the extension of banking facilities which mature end-Sep 09. While it is anticipated that the facilities sufficient for AVJ’s normal business operations will be extended, these facilities and liabilities are non-recourse to SC Global itself.

Sentosa Next. It looks likely that Sentosa Beachfront will be the company’s next project due for launch, though this is still at the planning stage. At this point, the company has no plans to relaunch any of the unsold units in its launched projects.

Maintain Fully Valued, TP S$0.74. We believe that unlike the mass or mid market segments, the luxury segment, which SC Global is most exposed to, is unlikely to recover by this year. Nonetheless, we now peg a smaller 40% discount (prev 50%) to its RNAV of S$1.23 (prev S$0.93), in view of a broader macro recovery. We maintain a Fully Valued call, with a new TP of S$0.74.

CapitaCommercial Trust (CCT) - Ex-rights target price of S$0.94

We maintain our 1 (Buy) rating for CapitaCommercial Trust (CCT) after the announcement on 22 May of a one-for-one rights issue (at S$0.59 per rights unit) that would raise gross proceeds of S$828.3m.

We believe the rights-issue announcement is not a flip-flop, but further evidence that the manager is managing proactively its capital and responding opportunistically to market opportunities when they arise.

After the rights issue, CCT’s aggregate leverage ratio, which already reflects a 10% asset-value write-down from December 2008 valuations, would fall to 30.7%.

We estimate that the ex-rights FY09 DPU yield (assuming that CCT trades at S$0.755, or 0.5x adjusted NAV of S$1.51) would be 9.0%, compared with 8.2% at the theoretical ex-rights price (TERP) of S$0.825, and 11.9% assuming no rights issue.

We have lowered our six-month target price, based on our RNG valuation method (a modified form of the Gordon Growth Model), to S$0.94, ex-rights (from S$1.54 before the announcement). The valuation decline comes from a doubling of units outstanding, offset partially by a lower debt assumption.

Frasers Centrepoint Trust - Highly Focused On Non-discretionary Consumer Spending

Suburban malls are more resilient. We conducted a site visit on 19 May 09 to Northpoint Shopping Centre located in Yishun, which was a lot more crowded compared to our last visit in Jan 09 (see our last update Anchor tenants have reopened at Northpoint dated 29 Jan 09). This reaffirms our view that suburban malls in the Housing and Development Board (HDB) heartlands are less affected by the economic turmoil. According to Frasers Centrepoint Trust (FCT), shopper traffic increased 7.9% yoy at Causeway Point, 7.2% at Northpoint and 8.6% at Anchorpoint in 2QFY09.

Retail sales index rebounded in Mar 09. Retail sales index for departmental stores and supermarkets recovered to +3.8% and +6.8% yoy respectively in Mar 09 after briefly entering negative territory in Feb 09. Anecdotal evidence suggests domestic consumption will continue to improve, going into 2Q09. A more buoyant retail scene will ensure renewal rates for leases expiring stay firm.

Earnings recovery driven by Northpoint. Net property income from Northpoint rebounded 31.3% qoq to S$4.2m in 2QFY09 with 80% of the enhancement works already completed. Occupancy rate at Northpoint recovered from 52.2% as at Dec 08 to 72.1% as at Mar 09. Management estimated that the asset enhancement initiative, which will be fully completed by Jun 09, will increase Northpoint's average rent by 20% and net property income by 30%.

FCT focuses on suburban malls located next to the Mass Rapid Transit (MRT) stations, which cater to non-discretionary spending by captive populations in HDB heartlands. Our target price of S$1.44 is based on the Dividend Discount Model (required rate of return: 7.7%, terminal growth: 2.5%). FCT provides 2009 distribution yield of 8.8% and trades at 30.9% discount to NAV/share of S$1.23.

Minimal impact from the block sale of the units at The Suites @ Central

Keppel Land announced that it has granted a six-month extension to an Indonesian investor who bought 51 units at The Suites @ Central in Devonshire Road on the condition that requires the buyer to pay S$0.5m per month during the extension period. The investor bought the 51 units in June 2007 at $1,806 psf for around S$127m under the deferred payment scheme. It is also working on collecting the payments for 5 units by May from two other Singaporean buyers who missed the payment deadline. Keppel Land has received payment for the other 101 apartments in the 157-unit project, which is a 60-40 joint venture between Keppel and Chip Eng Seng.

The recently transacted prices in the project have been around S$1500 psf which is at a 17% discount to the Indonesian buyers price of S$1806 psf or at a 38% discount from peak of S$2426 psf. We estimate Keppel Land's breakeven around S$1300 psf. If the 20% deposit is forfeited, the revised breakeven for those units would be around S$1040 psf which is still at a 30% discount to the current pricing levels. In the worst case of the buyer unable to make the payment, Keppel Land could repossess and resell the units at the current pricing levels or hold it for a longer term.

CapitaCommercial Trust: Overhang concern on gearing removed

1-for-1 Rights issue at S$0.59. Last Friday, CapitaCommercial Trust (CCT) announced that it will be doing a 1-for-1 Rights issue at an issue price of S$0.59 per rights unit. Issue price is at a steep discount of 44.3% to its closing price of S$1.06 prior to the trading halt. Approximately 1.4b units will be offered, raising gross proceeds of S$828.3m from the exercise. Of the proceeds raised, approximately 85%-95% (S$704.1m-S$786.9m) will be used to reduce borrowings. CapitaLand, which has a 31.4% stake in CCT, has committed to subscribe its proportionate share of the Rights units, which will require capital commitment of ~S$260m.

Steep decline in asset value warrants the need for capital raising. Latest valuation report of CCT's properties revealed a sharp decline in the valuation of CCT's assets. Valuation of its combined asset portfolio (as at 22nd May) has declined by S$681m (10.2%) from its December valuation to S$6,029.6m and the lower valuation was due to independent valuers using more conservative rental rates in their forecasts despite keeping their cap rate assumptions largely unchanged. Decline in asset value has pushed CCT's gearing level up from the reported 38.3% at the end of 1Q09 to 43.1% now, which is close to the upper band of CCT's target gearing level of 30%-45%.

Financial impact. Following the Rights issue, CCT's gearing level will decline from 43.1% to 30.7%, which is near the lower bound of its target gearing range. Net asset value will also decline from the reported S$2.94 per unit at the end of 1Q09 to ~S$1.52 per unit after adjusting for the decline in asset value and dilution impact. Our DPU forecast for FY09 will also be diluted by 46.4% to 6 S-cents, translating to a DPU yield of 7.3% base on the theoretical ex-Rights price of S$0.825 per unit.

Maintain BUY. The weak office market outlook is already a well-known fact and with declining office asset values, CCT's move to tap on the equity market is within our expectation. Depending on new debt for refinancing is unlikely to be sustainable as declining asset value would reduce the amount of loan obtainable through encumbering of assets and cost of borrowing could increase with the higher gearing. With the overhanging concern on its gearing removed, we think that this should be a positive catalyst to CCT's share price. We keeping our fair value of S$1.33 and maintain our BUY recommendation on CCT. Our ex-Rights fair value will be S$0.96.

Parkway Life REIT - In the pink of health

PLife REIT's 1Q09 results were in line with consensus and our expectations. DPU of 1.89 cts forms 25% of our forecast of 7.54 cts, up 16.3% yoy. Net property income of S$15.2m was up 36.6% yoy driven by its CPI-linked lease structure for the Singapore hospitals. Refinancing issues are cleared until 2H10 and funding remains available from a S$100m revolving credit facility and a S$500m MTN programme. We like PLife REIT as it remains one of the few REITs with clear visibility on earnings, and continued positive growth in the medium term based on its inflation-linked lease structure; Its strong balance sheet and the management's tamed stance on growth via acquisitions strategy puts PLife in a favourable position to ride out the downturn. PLife offers a forward yield of 8.7% at a P/BV of 0.65x. Maintain Outperform and DDM-based target price of S$1.20 (discount 8.09%).

Suntec REIT - Fairly valued - downgrade to HOLD

Office rents down 35% from peak. CB Richard Ellis data showed that both prime and Grade A monthly office rents have fallen about 35% from the highs of this cycle achieved in 2Q-3Q08. 1Q09 rents of S$12.30 psf per month for Grade A (versus S$18.80 psf pm in 3Q08) and S$10.50 psf pm for prime rents (versus S$16.10 psf pm in 3Q08) have taken the market back to 2Q07 levels. Meanwhile, the Business Times reported that a 16- storey freehold office block in the CBD has been sold by a UK fund. The Parakou Building was sold for about S$81.38m or S$1280 psf of net lettable area. The transaction is at a 36% discount to the S$128m the seller paid for the property two years ago. This is the first major office transaction after a fairly subdued 4Q08-1Q09.

We maintain our stance on office. The market data jibes with Suntec, which reported achieved rents of S$9.96 psf pm for Suntec City Office in 1Q09. In 2Q08, the manager had disclosed achieved rents in the range of S$12-15. At the results briefing, the manager had said that maintaining occupancy above the 90% level is a key priority. Negative drivers for office rents and capital values still persist, in our view: 1) excess capacity concerns; which are exacerbated by 2) a questionable demand outlook as companies rationalize their need for both existing space and planned expansions. As such, we maintain our forecast of continued rent declines for Suntec's office portfolio over FY09.

Capital value decline may drive recapitalization. With the successful refinancing of S$825m in loans maturing this year, Suntec's next refinancing requirement arises only in FY11. Our attention is on capital values - as independent valuations catch up with the market, we expect asset values to fall across the sector - increasing gearing levels. Lender and market appetite for leverage is low and we believe more S-REIT managers may launch equity issues to recapitalize REIT balance sheets.

Fairly valued. Our valuation for Suntec recognizes the need for correcting that implicit under-capitalization through additional equity - we price in an equity issue of S$500m at an issue price of S$0.70 (up from S$0.60 previously due to the recent price run up). This takes our fair value estimate for Suntec to S$0.84 (from S$0.80 previously) - or a 7% discount to our SOTP value of S$0.91. Suntec's price has increased 32% since our last report just three weeks ago. Downgrade to HOLD on valuation grounds.

CapitaCommercial Trust - Rights Issue: 1-for-1 rights issue at S$0.59/share

CapitaCommercial Trust (CCT) has announced a renounceable 1-for-1 rights issue at S$0.59/share, representing 44.3% discount to yesterday's closing price.

The exercise will raise S$828.3m to be used primarily for reducing existing borrowings. The rights issue will reduce gearing from current 43.1% (after taking into account fresh valuation dated 22 May 09) to 30.7%. The rights issue will provide financial flexibility, which is augmented by CCT's S$2.0b-worth of assets that are not pledged against any loans.

CCT's portfolio of investment properties is valued at S$6,029.6m based on latest valuation as at 22 May 09. This is 10.1% lower compared to valuation of S$6,710.6m as at 1 Dec 08. NAV/share is S$1.51 after taking into account the 1-for-1 rights issue and the latest valuation, much lower than previous S$2.91.

Rights units will be entitled to distributions which may accrue from 1 Jan 09. CCT is committed to maintain payout ratio of 100% for FY09.

The rights issue is fully underwritten by DBS, Cazenove (now part of Standard Chartered Bank) and UOB. Capitaland has a 31.4% stake in CC and has undertaken to fully subscribe for its pro rata entitlement of rights units.

Transactions pick up but supply to cap price growth. BUY CapitaLand.

Home prices are set to stabilise after the correction in 1Q09, but growth is unlikely given the large supply pipeline and the absence of foreign demand. After three months of good growth, we expect residential primary transaction volumes to ease through 2009. The price correction has reached our fundamental 40% peak-to-trough expectation and, with higher volumes and improving affordability, we are now removing the additional 10% cushion built into our estimates.

Better numbers in April. Singapore developers sold 1,207 private units in April, down 1% MoM. This brings total YTD primary sales to 3,858 units, or 88% of total 2008 annual sales. This is the third consecutive month where sales have crossed 1,000 units/month. Monthly sales volume is set to decline through the year as pent-up demand wanes. However, the annual figure should still exceed the historical average of 7,000 units.

Demand moving in from the mid-segments too. In contrast to February and March, April sales volume was driven by demand in the mid-end and high-end segment, as sales in Core Central Region (CCR) and Rest of Central Region (RCR) accounted for 57% of total sales. Furthermore, units transacted at over S$1,200/sf accounted for 18% of the total (1% in March), suggesting an increasing risk appetite for homebuyers.

Changing price estimates. April sales also illustrated that MoM pricing is stabilising. This concurs with our channel checks in the secondary market across Singapore. We had been expecting a 50% peak-to-trough correction in Singapore residential prices - 40% based on fundamentals and another 10% in “overcorrection”. With affordability factors improving and buyers showing more interest, we have eliminated this additional 10%, and we now expect prices to stabilise following the correction in 1Q09.

New RNAV estimate for developers. As such, we have raised our RNAV estimate for CapitaLand (CAPL SP - S$3.11 - BUY) by S$0.11 to S$3.20/share, while also raising our estimate for City Developments (CIT SP - S$7.78 - U-PF) by S$0.54 to S$7.38. Upward movement in residential prices is unlikely given the large supply pipeline, absence of foreign demand and the weakening rental market.

Sing Holdings - BUY recommendation, fair value S$0.21

1Q FY2009 results. Sing Holdings reported 1Q FY2009 revenue of $12.3m (+2,608.4% yoy) and net profit of $1.1m, which was a reversal from a net loss of S$0.1m in 1Q FY2008. Revenue and profit improved due to the recognition of proceeds from the sale of Meyer Residence based on the progress of construction.

Earnings estimates for FY2009F to FY2011F. We are expecting Sing Holdings to report a net profit of S$2.0m in FY2009F. As its projects are completed progressively in 2010F and 2011F, we would expect greater recognition of revenue and profit based on the progress of construction. This would result in net profit of S$5.3m and S$6.6m in FY2010F and FY2011F respectively.

Outlook for FY2009F. Sing Holdings has launched its “BelleRive” project at Keng Chin Road and has achieved sales of more than 50% of the project. Moreover, it is in the planning stage for “The Laurels” project.

Our views on the property market. URA reported that 1,332, 1,220 and 1,207 homes were sold in February, March and April 2009 respectively. We feel that the strong sales momentum in recent months has signaled that there is a turnaround in the property market. Moreover, buyers are rushing into the market as they do not want to lose out during the market recovery.
We believe that the robust sales in the mass market and mid-end homes will continue for the rest of the year as developers cut prices to attract HDB upgraders. However, the luxury segment where homes are sold above S$2,500 per square foot has not recorded any sales and developers have not launched any properties for the past three months.

Upgrade from HOLD to BUY recommendation, fair value reduced from S$0.245 to S$0.21. We are upgrading our recommendation from hold to buy as the stock is trading below its fair value. Sing Holdings has indicated that the price for the units at “BelleRive” project ranges from S$1,325 to S$1,464 per square foot. This is close to our estimate of S$1,380 per square foot for the project. We are adjusting the fair value of the stock from S$0.245 to S$0.21 due to the dilution from the rights issue. This is based on a 50% discount to the RNAV of S$0.42.

City Developments - What does it take for stock to reach S$10?

CityDev's share price has risen by over 88% since its lows of Mar 09 on improved transaction volumes in residential properties. While this is positive, the group is not a pure residential player, with 65% of its RNAV emanating from commercial and hotel assets. In a recovery phase, the stock typically trades at 1.8x P/BV. Our analysis indicates that bullish assumptions would be needed to justify this level. Physical values would basically need to revert to early 2007 levels. With physical supply looming and credit remaining tight, this prospect remains uncertain. We raise our FY09-11 core EPS estimates by 1-9% on more aggressive ASP assumptions. Our end-CY09 RNAV and target price (parity to RNAV) accordingly rise from S$6.81 to S$7.31. We are bearish on the stock at current valuations but would be buyers on any pullback. Maintain Underperform.

HLA: 1Q09 building materials volume picking up

Revenue rose a marginal 3% YoY to S$1.09b, as Tasek was made a subsidiary from Jan 09 after the successful takeover (Tasek was an associate in 2008).

Fewer white-goods sold. Xinfei, the consumer products group, recorded a revenue decline of 15% YoY to S$256m. 755k units of refrigerators and freezers were sold in 1Q09, 15% lower YoY. Xinfei tightened its credit to hypermarket chains and this led to some loss of business. In addition, ASP fell 6% YoY to RMB1,451.

More light-duty diesel engines sold, but heavy duty unit sales fell. The industrial products segment (incorporating diesel engines), recorded revenue expansion of 5% YoY to S$665m. 122k units of diesel engines were sold in 1Q09, down 5% YoY ? due to a 48% fall in heavy duty engine sales to 4.7k units. But this was offset by a 10% increase in light duty engine sales to 62.3k units. As heavy duty engines command higher margin (versus light duty engines), overall gross margin narrowed.

The building materials group (BMG) recorded revenue growth of 64% YoY to S$146m, primarily due to the consolidation of Tasek. Granite sales rose 35% YoY to 581k MT and cement was up 17% YoY to 616k MT.

Factoring in better 1Q09 net profit and expectations of strong sales, particularly for the white-goods business and continued robustness for the BMG, we have raised our 2009 net profit forecast by 74% to S$79m.

We maintain BUY and upgrade HLA target price from S$0.73 to S$1.20, based on sum-of-the parts valuation.

SC Global - No fresh provisions for now

After market close in Singapore, Tuesday, SCGD announced 1Q09 results, where headline numbers are broadly in-line. 36%-sold Martin No. 38 did not contribute to 1Q09 earnings, but we expect profit recognition to kick in later this year as construction progresses. There was no fresh provision made for The Ardmore and The Beachfront Collection sites in 1Q09, but our numbers suggest SCGD may need to make further provisions for the two sites in the coming quarters.

1Q09 EPS of 2.7Scts met 22% of our FY09F EPS forecast of 12.2Scts and consensus FY09F EPS forecast of 12Scts. Martin No. 38 is 36% sold, but did not contribute to 1Q09 earnings but we expect profit recognition to kick in later this year as construction progresses. Other variances from our forecast include: higher- than-expected operating expenses following the consolidation of AV Jennings, higher-than-expected interest expenses, as well as lower-than-expected tax expenses on account of a prior-year tax refund of S$2.4mn. Note that 1Q09 is the maiden quarter of AVJ’s consolidation and therefore year-on-year as well as quarter-on-quarter comparison may not be meaningful.

There was no fresh provision made for The Ardmore and The Beachfront Collection sites in 1Q09. As a recap, SCGD booked an allowance for foreseeable losses of S$30mn for the two sites in 4Q08. On our numbers, we think there could be a need to make further provision for the two sites in the coming quarters. Assuming the provision of S$30mn was made evenly for The Ardmore and The Beachfront Collection, the implied effective land cost is S$1,885psfppr for The Ardmore and S$1,669psfppr for The Beachfront Collection, on our estimates, which still appears hard to justify in the current market.

SCGD did not provide any guidance on when the two developments could be launched for sale, except to say that “the group continues to progress in the planning and design stage for its two sites at Ardmore Park and Sentosa Cove in Singapore.” Given that private home prices in Ardmore Park and Sentosa Cove have already reached some S$1,800psf and S$1,500psf, respectively, in the secondary market, notwithstanding the premium that SCGD’s products typically fetch, the high effective land cost of the two sites clearly limits the group’s options.

For highly-leveraged small developers under coverage, our valuation is based on net asset valuation of the group’s property assets in the distressed scenario, incorporating our core assumptions for the Singapore property market and yet-to-be-launched projects are ascribed current land value.

Changes in equity market risk premium, as well as any unexpected improvement in the outlook for the Singapore economy and physical real estate markets could see the stock trade up and above our distressed NAV estimate.