26 Aug 2013~ Good Morning Singapore!
Central Execution Team - The Excellence of Execution
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Global Flash: While You Were Sleeping
Source: Marketwatch
Quote for the day : Movies can and do have tremendous influence in shaping young lives in the realm of entertainment towards the ideals and objectives of normal adulthood - WALT DISNEY
Singapore: The Day AheadSINGAPORE DAYBOOK :DC rate hikes expected to be conservative. Chief Valuer may factor in potential impact of the Total Debt Servicing Ratio framework, suggest some analysts. [SINGAPORE] Development charges are generally expected to go up from Sept 1 on the back of higher land prices over the past six months. However, the pace of hikes may be conservative in line with the objective of promoting a stable property market, said some property consultants polled by BT.
Development charge (DC) is paid to the state in exchange for the right to enhance the use of certain sites or to build bigger projects on them. In addition to being tracked in property circles as they can affect redevelopment sites with a sizeable DC component, DC rates are seen as the government's reading of land and property values.
The rates are revised every six months taking into account current market values and stated according to use groups across 118 geographical sectors.
For the upcoming revision, property consultants expect the average DC rate for commercial use to rise between 3 and 10 per cent. For landed residential use, a smaller rise is predicted, between 0 and 5 per cent.
Increases forecast for the average DC rate for non-landed residential use vary widely: 0-3 per cent for Colliers, 3-5 per cent for Jones Lang LaSalle and 10-20 per cent for CBRE.
For the average industrial use DC rate too, CBRE has the most bullish forecast: 10-15 per cent growth. JLL expects the increase to be sub-one per cent and Colliers, 0-3 per cent.
JLL says the average DC rate hike for hotel use will be under 5 per cent and Colliers, 3-8 per cent.
DC rates are revised by the Ministry of National Development in consultation with the Chief Valuer (CV).
In the March 1, 2013 revision, the average DC rates for commercial and hotel use were jacked up significantly by 23.7 per cent and 26.1 per cent respectively. These were the market segments spared the January 2013 cooling measures, notes Colliers International consultant (research and advisory) Tay Huey Ying.
On the other hand, the residential and industrial property sectors, which were the subject of the cooling package, saw just a marginal increase or were left untouched - despite transaction evidence pointing to DC rates trailing land prices, she added.
For the March 1 revision, the average DC rate for industrial use inched up 0.6 per cent and that for landed residential use, 3.9 per cent. Non-landed residential DC rates were left completely untouched. "This was possibly the result of CV giving due consideration to the potential impact of the January 2013 cooling measures," says Ms Tay.
"For the upcoming review, CV is likely to give similar due consideration to the potential effects of the Total Debt Servicing Ratio framework introduced in late-June and affecting the purchases of all types of properties. Consequently, CV is likely to adopt a conservative stance when deciding on the extent of hikes in DC rates applicable for the coming six months," she added.
JLL's SE Asia research head Chua Yang Liang too expects the "outcome of the DC revision exercise to align with the government's overall intention of having a stable and sustainable property market as well as a healthy collective sales market (to promote overall urban regeneration and asset renewal), where DC rates can have a bigger impact".
Alan Cheong, research head of Savills Singapore, said: "Among the various use groups, DC rates for commercial use are likely to rise the most island-wide due to exponential price gains for strata shop and office units. Increases of up to 20-25 per cent in certain locations will not be surprising. An example would be Sector 109, where retail units at King Albert Park project have achieved high prices."
CBRE Research associate director Desmond Sim does not expect any major changes in commercial use DC rates in the CBD given their already high base, but predicts hikes of up to 10 per cent in suburban hubs with growth potential such as Jurong East, Woodlands and Paya Lebar.
Dr Chua expects Sector 27, which includes the Middle Road location, to post the biggest hike of 8-12 per cent, supported by the price for Bright Chambers' collective sale, which was 70 per cent above the land value implied by the sector's current DC rate for commercial use.
Ms Tay says that the commercial DC rate for Sector 112 (which includes Jurong East), which was raised by 15.4 per cent in the last revision, could see a further 8-12 per cent appreciation. A plot in Venture Avenue was sold at a state tender for $1,009 psf ppr in March, 25.7 per cent above the DC rate-implied land value. Morever, market watchers expect continuing buzz in the location to allow land values to keep trending upwards.
For non-landed residential use, Knight Frank research head Alice Tan predicts the biggest DC rate jump of around 15 per cent will be in Sector 112 (which also includes the Pandan/West Coast areas). She cites the sale of a Faber Walk plot in June at $687 psf ppr - a 35 per cent premium over the DC rate-implied land value. Dr Chua says Sector 100 has potential for an over-5 per cent rate hike this round, citing the en bloc sale of Yi Mei Garden in Tampines Road at 130 per cent above the DC rate-implied land value. Colliers says DC rates could rise 10-15 per cent in Sector 74 (which includes Tiong Bahru Road) and the adjacent Sector 80 (Kim Tian Road, Jalan Membina).
Tuas, Woodlands, Mandai and Ubi are among candidates for above-average increases in industrial use DC rates going by prices achieved at state tenders.
(Source: The Business Times)
MARKET SCOOP
Prima commits to rehiring workers till 68
Sabana Reit to buy Chai Chee Lane property for S$68.2m
Centurion's unit submits highest bid of S$80.8m for Woodland site
Hafary FY net profit jumps on S$22.7m gain
S'pore industrial output seen edging higher in July: poll
Singapore's inflation edges up to 1.9 per cent in July
(Source: The Business Times) DBS Securities says... SINGAPORE REITS Flows presiding over fundamentals
Despite reporting a firm set of financial performance in 2Q13 (growing top line and stable interest costs), S-REITs share prices continue to remain under pressure
The weakness in share prices appears to derive from fund outflows and heightened required returns rather than weakening fundamentals
Volatility to stay; not time to pile in
While valuations for the sector appear more palatable at 1.05x P/Bk NAV, FY13-14F yield of 6.3%-6.7%, we believe that volatility is here to stay
Looking back at historical performance as a guide, S-REITs traded within a volatile range in times of rising interest rates (through the previous rate hike over 2004-2006) with only a sustainable re-rating kicked-start by a period of high DPU growth of c13% over 2006-2008
This period also coincided with the S-REITs trading at a tighter than average yield spreads of 250 bps
Our forecasted slower growth of c5% over FY13-14F implies the risk of thinning spreads coming from further bond yield hikes (DBS forecasts 10 year bonds to spike a further 30 bps from current levels)
Thus, we believe that as a sector, the S-REITs appear fairly priced at yield spreads of 370-380bps
Adjusting to a more volatile environment; further downside if bond yields spiked above 3.5%
As we update assumptions to reflect higher discount rates (+0.05 in average betas and higher interests) as the sector negates its way through the current interest rate upcycle, our TPs are reduced by up to 10%
Further sensitivity analysis of the impact of further hikes in bond yields to 3.5%/4.0 and required returns (pegged to 2009 levels) imply further downside of between 4% and 20% for most S-REITs
A right price for everything
Amidst the "blood in the street" we found certain S-REITs that have fallen below our bear case TPs, implying that most of the negatives are already priced in
Selective BUYs in CDREIT, Cache, Suntec and CRCT
DMG OSK Securities says ...
VARD HOLDINGS LTD | NEUTRAL | TP: S$1.10
Vard won a NOK800m (USD131m) repeat order from Farstad for an offshore subsea construction vessel (OSCV), bringing its YTD order win to NOK11.3bn
We maintain our EPS estimates but see some upside risks to our new order forecast of NOK12bn
We like Vard for its strong positioning in building high-end offshore support vessels
(OSVs) and its attractive valuations at 7.4x FY14F P/E and EV/EBITDA of 3.9x
Rising orderbook erases concerns on visibility
We estimate that the new order lifted Vard's YTD order win to NOK11.3bn - accounting for 94% of our FY13 forecast of NOK12bn - and unbilled orders to NOK21.2bn (USD3.48bn)
Vard has secured NOK7.3bn worth of new orders in August alone compared with NOK4bn in 1H2013
Investors were concerned about the company's thin orderbook when its 2Q13 results were announced but recent announcements should put their concerns to rest
Repeat order likely to carry better margins
We are positive on this order as it is a repeat order with Vard's own design
A similar unit was ordered by Farstad in Feb 2013 and scheduled for delivery in 1Q2015
The latest order will be built based on VARD 3 07 design with a total length of 143 metres, beam of 25 metres and deck space of more than 1,800 sq m
The vessel can carry three remote operating vehicles (ROVs) and accommodate 130 people
The hull will be fabricated in Vard Tulcea in Romania and we expect the final delivery from Vard Langsten in Norway in 3Q2015
Maintain BUY, with SGD1.10 TP
We value the stock at a 10x FY14F P/E
The key catalyst is the potential recovery in margin from the lows in 2Q2013
Key risks are further delays and poor cost control in Brazil
OCBC Securities says...
UNITED ENVIROTECH LTD | HOLD | TP: S$0.975
United Envirotech Ltd (UEL) has just secured a RMB100m BOT (Build, Operate, Transfer) contract in Shandong Province, China; this to construct and operate a 30k m3/day municipal waste-water treatment plant
Scheduled to be completed by 3QCY14, it will use the company's membrane bioreactor (MBR) technology and will be built underground, just like the 100k m3/day one it built in Guangzhou City in 2010
As before, UEL plans to fund the project using the proceeds from the CB issue and share placement to KKR and bank financing
Based on its usual 40% equity/60% debt split, UEL should have no issues with coming up with S$8m of cash, given its cash balance of S$25.9m as of end Jun 2013
Recall that UEL can also tap on the recently launched US$300m MTN programme
Noting that the latest project (which will reach 80k m3/day upon completion of Phase 2) is a follow-up of the 100k m3/day membranebased drinking water project it secured in Yantai last year, management remains upbeat about its prospect there and intends to
continue to secure more similar projects in Shandong and other parts of China
Despite the latest contract win, we note that it will only meet around 20% of our new contract wins expected this year; hence, we opt to leave our forecasts unchanged for now
Separately, UEL has entered into an agreement to acquire 100% of Memstar Technology Ltd's (MTL) membrane operations for S$293.4m - paying S$73.354m in
cash and issuing 200.055m UEL shares at S$1.10 each
While the move is positive in the longer term, the stock could see a large dilution on the completion of that deal
As such, we are also more inclined to maintain our HOLD rating, although the current upside to our unchanged S$0.975 fair value (13x FY14F) is around 8% |
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