2nd Liner Prop Stocks

CES: Net profit for 9M was down 29% to $94.8m. However, this is due to a change in accounting policy, and therefore the profit fall is not a concern.
EPS for the 9M is a good 14.33cts. If full year EPS hit 16cts, then the PE for FY2011 will be only 2.3X. Also, NAV has surged to nearly 59cts. RNAV should be about 70-80 cts per share.
 
There is a good chance CES will dish out a DPS of 3-4 cents (last year: 4cts per share) when it announces its full year results next Feb. This will work out to a prospective dividend yield of about 10% or higher.
 
Meanwhile, it had clinched 2 construction contracts recently, sold 100% of Prive and Belysa (40% stake in each of them), sold 36% of My Manhatten, and is due to ballot its DBSS project Belvia. Co is quite sharp in clinching reasonably priced land parcels and selling the new units quickly.
 
What I like: (1) dividend yield play, (2) RNAV support, (3) sharp management, (4) liquidity, (5) exposure to construction sector.
 
Heeton: Net profit for 9M surged 54% to $20.29m. EPS for 9M is 9.06 cts. NAV is now 97.19cts. RNAV probably stays at about $1.20-1.30. PE for full year should be below 4X.
 
Co has recently bought a few pieces of land with other partners. They seem a bit late in these purchases, so I am assuming minimal profit from these projects, just to be prudent.
 
Co has sold most of the units at The Boutiq, but no sales are recorded in its high end projects The Lumos and iLiv@Grange . No attractive catalyst going forward, unless co succeeds in selling some of its high end projects or Sun Plaza.
 
What I like: (1) sharp discount to RNAV, (2) sudden jump in stock price possible if deals to sell Sun Plaza or its high end projects (in a bulk deal) are sealed.
 
Cautious: (1) being a bit late in some of its recent land purchases. (2) not willing to "let go" of its assets, (3) lack of liquidity
 
Roxy-Pacific: 9M net profit dropped about 20% to $30.8m. EPS for 9M is 4.83cts. Substantial amount of profit comes from fair value gains of assets.
 
NAV is 31.2cts, but if its hotel is marked to market value, then RNAV is 71.9cts.
 
Results are unexciting, although this is expected. However, co is interesting in that it is (1) exposed to the hotel sector, which is doing rather well. Recent transacted and asking prices of new hotels seem to point to a good rise in hotel values. Impending listing of Fragrance's, OUE's and Orchard Parade's hotel arms may give some spotlight to Roxy's hotel exposure; (2) it has quite a substantial number of projects/units which are already pre-sold and which will provide good profits for the next few years; and (3) management has been quite sharp in buying land at reasonable prices, and then selling the new projects quickly and at good profits.
 
What I like: (1) share purchases by substantial shareholders; (2) good and sharp management; and (3) exposure to hotel sector (4) many project launches in next few months may act as catalysts if they sell well.
 
Cautious: with its hotel value making up a big part of NAV, Roxy's share price will have to be discounted in a similar way as other hotel stocks (which can be as high as 50%). Liquidity is also lacking.
 

sumer: 
Roxy-Pacific’s 9M11 net profit actually INCREASED about 24% to $38.3m. And EPS for 9M11 should 6 cts. The figures you quoted were for 9M10.

The latest govt measures on property purchases, while harsh, are necessary for the property market as 4 previous measures have all failed to bring about a price correction or a dampening of demand.
 The obvious effects are apparent to most investors, but here are a few interesting "other" angles to consider:
 
1. Many property stock prices have already corrected substantially, and their prices are already reflecting possible physical property price correction of about 20%. Hence, if the new measures do lead to a 20% price correction, it is not a surprise to the property stock owners.
 
2. Many investors who are bearish about the physical property market have already exited property stocks. So, the remainder holders are owning the stocks based on the expectation that physical property prices are going to correct about 20% (or even more) anyway. I will not be surprised if some investors who had previously sold out may actually use further stock price weakness to buy back some shares.
 
3. Many developers, safe for a few, have pre-sold a substantial percentage of their projects. In fact, some of them will, going into the next few years, be flushed with cash. Compared to 2007/8, many are now much better off in that (1) they have much better balance sheets (ie, more cash or lower gearing), and (2) they are holding fewer unsold units.
 
4. The new measures could also be positive for developers which have not been able to replenish their land bank due to high prices. For eg, Hiap Hoe had not been able to clinch any residential land although they had participated in the GLS (govt land sale) program as its bids were too low. Stiff competition had forced some developers to bid too aggressively previously, and thus putting them at risk in a weakening market. Now, with the new measures, bids could be more reasonable, and thus winners would be buying land at prices that are "less risky". Developers which previously worry about the flow of projects beyond 2014/5 because they could not buy any land, could see a weakening market as a blessing in disguise.
 
5. One positive side of the measures is that it is necessary for this drastic move so that the supply side will not be continuously and mistakenly boosted to meet what seemed like unstoppable demand. If cheap loans and hot money from overseas are the main reasons for the huge demand, it is dangerous to keep satisfying this demand by simply increasing supply. This is because once those 2 reasons disappear, we will be left with a huge supply looking for non-existent real demand. Hence, the latest measures are not only necessary but good for the market in the longer term - the intention is not to allow the creation of a bigger supply (and not just price) bubble.
 
6. Analysts' expectations of price declines of 15-30% in the physical market is not new or unexpected. Many research reports had been calling for "neutral" or "negative" on the sector for many quarters. In fact, based on the huge supply that is resulting from the GLS, I had expected prices to start correcting as early as 1 year ago. Many analysts have in fact been surprised that the physical market price correction had not come sooner, with price falls delayed one quarter after another as unexpectedly strong demand kept surprising analysts and the property bears. Hence, if the latest government measures lead to that long awaited price correction, it's not a grave concern, and in fact, to me, it is but the natural course of things - what had gone up, must plateau and then correct.
 
7. Investors should not forget that it is highly likely once the latest measures have achieved their intended effect, the government may remove them. In Hongkong now, for eg, there is already talk that their govt measures may be removed as demand had slumped substantially. Likewise, if the Singapore govt sees that the effect is greater than they had expected, removal of these measures, or even the earlier measures, may happen.
 
8. On the micro level, instead of painting the whole lot of developers with the same big brush, investors could study each developer individually. Many 2nd liner property counters have interesting "side stories" or "hidden values" that make them more than just another developer. For eg, the companies may be substantially exposed to the strong hotel sector (eg, Roxy, Hiap Hoe, Superbowl, OUE, Orchard Parade and soon, CES), working on listing their hotel arms (eg, OUE and Orchard Parade), are possible privatization candidates because they are so substantially undervalued (eg Hiap Hoe, Superbowl, Heeton), good dividend yield stories (eg, CES -  possibly10%), etc. At the same time, traders may want to identify stocks that have high liquidity and targets of traders and ask whether some of these counters which come down substantially may be shorted down, and hence be poised for short covering at some point.
 
The latest property measures, in my opinion, are just the catalyst and the excuse for what is eventually due to happen anyway. Analysts have long been negative on the residential sector, with some expecting 10-20% price declines. Investors have to decide how much of all this is already worked into share prices, and if the measures could in fact, be a positive thing for developers in the long run. On net, compared to stubbornly strong demand at new launches and stubbornly strong prices, as well as the dangers of the government over-supplying the market with land sites just to meet unsustainable demand, the latest property measures may not be as negative as they appear at first look.
 

U made good points, sumer. I would add a different perspective -- if you read Ku Swee Yong comment in BT today where he sounded sore cos he said in overseas investment events, he has been telling foreign investors that they will be treated equally with Singaporeans when it comes to property investments.

Hahaha..... the General Election 2011 has changed the game. If property prices become a sore point among Singaporeans, there will be lots of flak for PAP. Already in GE2011, property prices were a big losing point for the PAP.

Many young Singaporeans feel they can no longer afford homes --- this was partly because of government's immigration policy. But also becos of foreign buying / speculation in our property.

It is only right that the govt deter foreign buying at this stage when prices are ridiculously high. There would be lots of liquidity from Europe taking flight from the crisis there, so better tax them hard if they still want to push prices up here.

Singapore is not alone. Other regional govts, esp China, have imposed measures to cool property prices in their respective countries.

The lessons for investors is stern govt measures will limit the upside of property prices.

As a result, property stocks aren't going to enjoy strong run-ups that they used to as there will be lower visibility of the market amid strong uncertainty over timing and extent of future government intervention.

If prices down by 10%, the foreign investor will be paying prices as they are today. If they can afford today's prices, they will just need to wait for market downturn by 10%. This assumes they are owner-occupiers, rather than investors and speculators.

As for those with lots of money, buying at today's level + 10% stamp duty, well, what's the big deal? Of course, in reality, no such buyer would buy today becos it's a self fulling prophecy that the market is on course for a sharp correction.