Major new wires reported today that non-local residents in Shanghai can now purchase second homes after holding residence permits for three years, citing the city’s housing regulator through Shanghai Securities News. While too early to tell, we believe this development shifts the odds marginally towards a scenario of fine-tuning and decentralization from centrally-imposed buyer restrictions, given that Shanghai is a touchstone for major policy shifts. In our view, while Chinese monetary easing has gradually reduced the likelihood of a hard-landing scenario, persistent property curbs and slowing residential sales remains the main drag on CAPL’s earnings outlook. With visibility already mostly present for CMA’s strong execution on its mall pipeline and an expected positive launch at Sky Habitat (Bedok) in 2Q12, shifts in market expectations regarding Chinese residential sales would likely be a key price catalyst over the near to mid-term. We raise our fair value estimate to S$3.40 (unchanged RNAV discount of 25%) versus S$3.11 previously, after updating our model for higher valuations of listed holdings and less bearish estimates of Chinese residential ASPs. Maintain BUY.
Higher odds for fine-tuning and decentralization
Major new wires reported today that non-local residents in Shanghai can now purchase second homes after holding residence permits for three years, citing the city’s housing regulator through Shanghai Securities News. Previously, residence permit holders were not allowed to buy second homes in the city. While too early to tell, we believe this development shifts the odds marginally towards a scenario of fine-tuning and decentralization from centrally-imposed buyer restrictions, given that Shanghai is a touchstone for major policy shifts.
It’s about Chinese residential sales
A majority of CAPL’s assets is in China - 38% of assets, ex. cash, as of end 4Q11. Of its Chinese exposure, 38% is in residential projects. In our view, while Chinese monetary easing has gradually reduced the likelihood of a hard-landing scenario, persistent property curbs and slowing sales remains the main drag on earnings outlook. CAPL sold ~1,500 Chinese residential units in FY11 versus 2,920 units in FY10. QoQ sales also slowed (409 units sold 3Q11; 161 units 4Q11). Management had indicated there are 2.4k launched and unsold Chinese units, which is a fairly large inventory to work through. With visibility already mostly present for CMA’s strong execution on its mall pipeline and an expected positive launch at Sky Habitat (Bedok) in 2Q12, shifts in market expectations regarding Chinese residential sales would likely be a key share price catalyst over the near to mid-term.
Maintain BUY at higher fair value estimate of S$3.40
We had highlighted Chinese macro drivers as a likely positive catalyst in an earlier paper “China – wild card” dated 15 Dec 2011 with a Buy call, and note that the CAPL’s share price has appreciated 40% since then. We reiterate our investment thesis and raise our fair value estimate to S$3.40 (unchanged RNAV discount of 25%) versus S$3.11 previously, after updating our model for higher valuations of listed holdings and less bearish estimates of Chinese ASPs. Maintain BUY
.
Major new wires reported today that non-local residents in Shanghai can now purchase second homes after holding residence permits for three years, citing the city’s housing regulator through Shanghai Securities News. Previously, residence permit holders were not allowed to buy second homes in the city. While too early to tell, we believe this development shifts the odds marginally towards a scenario of fine-tuning and decentralization from centrally-imposed buyer restrictions, given that Shanghai is a touchstone for major policy shifts.
It’s about Chinese residential sales
A majority of CAPL’s assets is in China - 38% of assets, ex. cash, as of end 4Q11. Of its Chinese exposure, 38% is in residential projects. In our view, while Chinese monetary easing has gradually reduced the likelihood of a hard-landing scenario, persistent property curbs and slowing sales remains the main drag on earnings outlook. CAPL sold ~1,500 Chinese residential units in FY11 versus 2,920 units in FY10. QoQ sales also slowed (409 units sold 3Q11; 161 units 4Q11). Management had indicated there are 2.4k launched and unsold Chinese units, which is a fairly large inventory to work through. With visibility already mostly present for CMA’s strong execution on its mall pipeline and an expected positive launch at Sky Habitat (Bedok) in 2Q12, shifts in market expectations regarding Chinese residential sales would likely be a key share price catalyst over the near to mid-term.
Maintain BUY at higher fair value estimate of S$3.40
We had highlighted Chinese macro drivers as a likely positive catalyst in an earlier paper “China – wild card” dated 15 Dec 2011 with a Buy call, and note that the CAPL’s share price has appreciated 40% since then. We reiterate our investment thesis and raise our fair value estimate to S$3.40 (unchanged RNAV discount of 25%) versus S$3.11 previously, after updating our model for higher valuations of listed holdings and less bearish estimates of Chinese ASPs. Maintain BUY
.
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