Market Pulse: SG Residential Property (19 Dec 2012) (RESENT)

Stock Name: CITYDEV
Company Name: CITY DEVELOPMENTS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 13.96

MARKET PULSE: SG Residential Property

19 Dec 2012

KEY IDEA SG Residential Property: Spate of privatizations could come Given the current environment of low borrowing costs and steep trading discounts to RNAV for high-end developers, it is likely that we could see a spate of privatization activity ahead. We believe potential candidates for privatization include those are trading significantly below RNAV, have a low public float, and have major holders with stakes above 50%. These criteria yield two additional candidates for privatization: Ho Bee and Wheelock. For physical home sales, we saw ~20.9K new homes (excluding landed and EC) sold by developers year to date, of which the bulk (74%) are mass-market units. As interest rates remain low, we believe that continued monetary liquidity in the market would underpin demand for mass-market units. We forecast for mass market property prices to appreciate 0%-5% in 2013. For high-end property, we expect prices to dip 0% - 10% in 2013, due to the impact of recent cooling measures. We maintain our OVERWEIGHTrating on the residential property sector and expect continued strength in the mass-market segment in FY13. Our top stock pick is City Developments [FV: S$13.96, BUY] for its sharp execution, effective land-banking strategy and strong balance sheet. (Eli Lee)

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NEWS HEADLINES - US stocks rose for a second day on Tue, on signs of progress towards a deal to avoid the fiscal cliff of spending cuts and tax increases next year. The Dow ended 0.9% higher at 13,350.96, while the S&P 500 Index rose 1.1% to 1,446.79 and the Nasdaq finished 1.5% higher at 3,054.53. - Cambridge Industrial Trust (CIT) has agreed to buy an indirect 60% stake in a 316k sq ft industrial facility in the JTC Tuas Biomedical Park for S$15.0m that will be leased to a unit of pharmaceutical company Strides Arcolab for 25 years. The property was introduced to CIT by sponsor Oxley Global, which will own the remaining 40% stake. - Hiap Seng Engineering has won a THB652m (S$26m) structural steel fabrication contract for a liquefied natural gas terminal project in Australia. Work on the project is expected to begin early next year and is scheduled for completion by May 2014. - Chip Eng Seng Corp has received the Australian government's approval for its A$170m Tower Melbourne residential development in Melbourne's central business district. - Harry's Holdings, the target of a buyout offer by private-equity fund Everstone Capital, said that its public float has fallen below the 10% threshold required to keep the company listed.