We judge CityDev’s share price to be fairly rich here, given a deteriorating outlook for its core development business, and opt to take profit at this juncture. Downgrade to SELL with a lower fair value estimate of S$8.72 (30% RNAV disc.), versus S$9.17 previously, as we incorporate softer residential ASPs and lower valuations for listed holdings into our model. From latest data-points and channel checks, we anticipate increasing headwinds in the domestic residential space as both primary and rental markets continue to suffer from weakening supply-demand dynamics. 1Q14 URA flash estimates for the private residential property index showed a 1.3% decline, indicating downward price momentum after a 0.9% dip in 4Q13. We also note the weakness was fairly broad-based, with prices in the Outside Central Region (mass-market), Rest of Central Region (mid-tier) and Core Central Region (high-end) falling 0.3%, 2.8% and 1.3% respectively. In addition, we expect pressure on rental rates ahead as the physical market heads deeper into an over-supply situation.
Downgrade to SELL with lower S$8.72 fair value estimate
From latest data-points and channel checks, we anticipate increasing headwinds in the domestic residential space as both primary and rental markets continue to suffer from weakening supply-demand dynamics. We judge CityDev’s share price to be fairly rich here, given a deteriorating outlook for its core development business, and opt to take profit at this juncture. Downgrade to SELL from hold with a lower fair value estimate of S$8.72 (versus S$9.17 previously) as we incorporate softer residential ASPs and lower valuations for listed holdings into our model.
1Q14 flash estimate: price decline gaining momentum
Our forecast is for mass-market and high-end home prices to dip 10%-15% and 5%-10%, respectively, over FY14-15. Over 1Q14, URA flash estimates for the private residential property index showed a 1.3% decline, indicating downward price momentum after a 0.9% dip in 4Q13. The weakness was fairly broad-based, with prices in the Outside Central Region (mass-market), Rest of Central Region (mid-tier) and Core Central Region (high-end) falling 0.3%, 2.8% and 1.3% respectively. Also, we note primary transactions over Jan-Feb 2014 has fallen 56.7% YoY, highlighting difficult conditions for developers as buyers’ demand were curtailed by loan restrictions and weaker price expectations. Finally, we also expect pressure on rental rates ahead as the physical market heads deeper into an over-supply situation; note that island-wide vacancy rates had increased 1.0 ppt from 5.2% to 6.2% from 1Q13 to 4Q13.
Meaningful repositioning of portfolio will take time
With a weak domestic outlook, management’s strategy of accelerating its diversification into overseas growth markets, such as US, Japan, Australia, China and London, is a sound and timely one, in our view. Already, the group has acquired 28 Pavilion Road in Knightsbridge last year and is actively pursuing further acquisition opportunities. However, given the size of CityDev’s balance sheet, a meaningful repositioning of its business portfolio would take some time and the market would likely look for more color and execution ahead before a re-rating occurs.
From latest data-points and channel checks, we anticipate increasing headwinds in the domestic residential space as both primary and rental markets continue to suffer from weakening supply-demand dynamics. We judge CityDev’s share price to be fairly rich here, given a deteriorating outlook for its core development business, and opt to take profit at this juncture. Downgrade to SELL from hold with a lower fair value estimate of S$8.72 (versus S$9.17 previously) as we incorporate softer residential ASPs and lower valuations for listed holdings into our model.
1Q14 flash estimate: price decline gaining momentum
Our forecast is for mass-market and high-end home prices to dip 10%-15% and 5%-10%, respectively, over FY14-15. Over 1Q14, URA flash estimates for the private residential property index showed a 1.3% decline, indicating downward price momentum after a 0.9% dip in 4Q13. The weakness was fairly broad-based, with prices in the Outside Central Region (mass-market), Rest of Central Region (mid-tier) and Core Central Region (high-end) falling 0.3%, 2.8% and 1.3% respectively. Also, we note primary transactions over Jan-Feb 2014 has fallen 56.7% YoY, highlighting difficult conditions for developers as buyers’ demand were curtailed by loan restrictions and weaker price expectations. Finally, we also expect pressure on rental rates ahead as the physical market heads deeper into an over-supply situation; note that island-wide vacancy rates had increased 1.0 ppt from 5.2% to 6.2% from 1Q13 to 4Q13.
Meaningful repositioning of portfolio will take time
With a weak domestic outlook, management’s strategy of accelerating its diversification into overseas growth markets, such as US, Japan, Australia, China and London, is a sound and timely one, in our view. Already, the group has acquired 28 Pavilion Road in Knightsbridge last year and is actively pursuing further acquisition opportunities. However, given the size of CityDev’s balance sheet, a meaningful repositioning of its business portfolio would take some time and the market would likely look for more color and execution ahead before a re-rating occurs.
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