Thursday 3 January 2013

City Development

OCBC on 2 Jan 2013

We visited City Development’s (CDL) latest launch, the 508-unit condominium project Echelon, over the weekend. The project near the Redhill MRT station put up a strong set of numbers in its first weekend of sales, with over 300 units sold at ASPs around S$1.7k psf. We believe this launch performance to be above view. We estimate breakeven ASP at $1.2k psf, which translates to an attractive gross profit margin around 40% for the project. To recap, CDL together with Hong Realty put in the top bid (S$396m or S$754 psf GFA) for the 99-year GLS site at Alexandra Rd in Nov 2011. Maintain BUY with a higher fair value estimate of S$14.05 (10% RNAV discount), versus S$13.96 previously, as we update for firmer residential ASPs into our model.

Over 60% sold in opening weekend
We visited City Development’s (CDL) latest launch, the 508-unit condominium project Echelon, over the weekend. The project near the Redhill MRT station put up a strong set of numbers in its first weekend of sales, with over 300 units sold at ASP of around S$1,700 psf. We believe this launch performance to be above view. The breakdown of units in the project are as follows: 68 one-br units, 152 two-br, 246 three-br, 38 four-br and 4 penthouses. We note that the bulk of the one-br and two-br units have been sold. 

Attractive mortgage packages offered
Both DBS and UOB were offering attractive mortgage loan packages for buyers at the showflat: 0.85% + 3M SIBOR for the first three years, 1.00% + 3M SIBOR for the fourth year, and 1.25% + 3M SIBOR for the fifth and after. OCBC was offering a mortgage package based off its board rate; at its current board rate of 4.5%, this translates to mortage rates of 1.08% in the first year, and 1.18%, 1.38%, 2.65% and 3.75% in the second, third, fourth and fifth years, respectively.

Breakeven price estimated at S$1.2k psf
We estimate breakeven ASP for the project at $1.2k psf, which translates to an attractive gross profit margin around 40% for the development. To recap, CDL together with Hong Realty put in the top bid (S$396m or S$754 psf GFA) for the 99-year GLS site at Alexandra Rd five minutes away from the Redhill MRT station in Nov 2011. There were seven bidders in all and CDL’s bid came in 9% above the next highest. 

Maintain BUY with higher S$14.05 fair value estimate
We continue to see CDL as the best-in-class amongst domestic residential developers due to its strength in project execution, ability to read the market, and its effective risk-weighted approach to land banking. Maintain BUY with a higher fair value estimate of S$14.05 (10% RNAV discount), versus S$13.96 previously, as we update for firmer residential ASPs into our model.

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