Thursday 16 October 2014

Wheelock Properties

OCBC on 13 Oct 2014

Summary: Recent flash estimates of the URA private residential property price index showed a 0.6% decline in 3Q14 – a fourth consecutive quarter of price decrease cumulating in a 3.8% dip since its peak in 2Q13. We expect unabated headwinds in the weak domestic residential market going ahead, and prefer developers with sizeable diversified income from investment assets, a strong balance sheet and potential catalysts ahead. Wheelock is our top pick amongst the mid-sized developers, with a stable 3.3% yield underpinned by prime Orchard investment assets, a strong balance sheet (7.3% net gearing) that will likely buttress the group through the domestic residential downtrend, and potential upside from its 22.6% stake in Hotel Properties Limited. We advocate that investors buy on its recent price weakness, particularly as it finds technical support near S$1.76. Maintain BUY with an unchanged fair value estimate of S$2.38.

Stable dividend yield supported by prime Orchard assets
Recent flash estimates of the URA private residential property price index showed a 0.6% decline in 3Q14 – a fourth consecutive quarter of price decrease cumulating in a 3.8% dip since its peak in 2Q13. We expect unabated headwinds in the weak domestic residential market going ahead and prefer developers with sizeable income from investment assets, a strong balance sheet and potential upside catalysts. Wheelock Properties (S) Limited (“Wheelock”) provides a stable dividend yield of 3.3% underpinned by the group’s prime Orchard retail assets: Wheelock Place and Scotts Square Retail. As at end Jun 2014, Wheelock Place was 100% occupied with an overall monthly rental of above S$13 psf per month. Scotts Square Retail was 93% occupied, with an average rental of above S$22 psf per month, and management reports that they are actively looking at rejuvenating the mall with stronger international luxury labels and F&B concepts. 

Strong balance sheet can buttress group through downturn
The group’s domestic residential projects, Scotts Square (338 total units), The Panorama (698 total units) and Ardmore Three (84 total units) are 79%, 38% and 4% sold, respectively. While SG residential sales are likely to remain uninspiring, Wheelock’s development asset exposure is contained at 30% of total assets as at end 2Q14, and we believe the group’s solid balance sheet, with a healthy cash balance of S$410.0m and low gearing of 7.3%, will likely buttress it through the residential down-cycle ahead.

BUY on current price weakness
Finally, we continue to view Wheelock's 22.6% stake in Hotel Properties Limited (HPL) shares as another potential catalyst, which could precipitate further upside should HPL decide to optimize and extract value from its multiple highly-prized but under-developed assets in the Orchard area ahead. Wheelock is our top pick amongst the mid-sized developers and we advocate that investors buy on its recent price weakness, particularly as it finds technical support near S$1.76. Maintain BUY with an unchanged fair value estimate of S$2.38.

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