SC Global - Super-luxury segment — premature optimism

While the recent pick-up in presale activity has fuelled optimism among the bulls for a speedy market turnaround, we believe the prime super-luxurious segment in which SC Global (SCGD) specialises could be a test for that optimism in the current environment. To begin, the definition of high-end is debatable, and one could argue that a 500 sq ft unit selling for S$2,000psf in a prime location is high-end (in reality, the purchase quantum works out to an affordable S$1mn, which appears to be the magic number/psychological hurdle for most home buyers at the moment).

To qualify for the prime super-luxurious category, the definition is less murky — large units with top-quality finishes that were going for as much as S$4,000psf (for SCGD’s Hilltops) at the peak of the cycle. SCGD averages 1,600-1,900 sq ft/unit, with the exception of The Marq on Paterson Hill (average unit size over 3,800 sq ft) and Martin No. 38 (average unit size nearly 1,400 sq ft).

On our numbers and assuming no price cut, the average purchase price of SCGD’s projects ranges from S$2.7mn for Martin No. 38 to S$15mn for The Marq on Paterson Hills. The assumption of no price cut is not far-fetched, in our view, as SCGD has maintained that it will not cut prices to move units — in essence, brand equity over asset turnover.


We still think it may be difficult for the current optimism to spill over to the superluxurious segment given the existing macroeconomic backdrop. Price-sensitive home buyers, those most likely concerned with job security (our economists expect unemployment to hit 5.2% by year-end), are not the targeted buyers of SCGD’s products and will likely limit any home buying decision to a property that costs S$1mn or less. Wealthy, price-insensitive home buyers, on the other hand, have choices in many other cities that have seen an even more pronounced correction in prime asset prices.

Our valuation methodology of pegging the 12-month price target to the distressed NAV estimate is unchanged for highly leveraged smaller developers such as SCGD. We had, however, valued the Beachfront Collection site at S$415psfppr, previously, working off the then-market clearing price of S$1,100-1,200psf. That price has since moved up to S$1,300-1,400psf in recent months. Accordingly, we raised the valuation for the Beachfront Collection site to S$620psfppr. We left our valuation for The Ardmore site unchanged at S$1,420psfppr, since we think our market clearing price assumption of S$2,400psf remains relevant.

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