HAVING FOLLOWED property developer stocks for quite a long time now, I am happy that many of them have performed smartly in 2012.
I recap why I own some of these:
1. Chip Eng Seng - It's my favorite developer stock for now as there are interesting immediate catalysts for the counter. I also like the fact that since its shares are not tightly held like most other small developer stocks, so there is liquidity and perhaps the possibility of a hostile takeover.
2. Hiap Hoe/Superbowl - I believe Hiap Hoe is in the process of developing its Kallang Pudding industrial site.
Also, 5 more units of Skyline 360 were sold after TOP. Its Treasure at Balmoral show unit is being prepared for launch. No units sold yet.
While I still like both companies for their steep discount to RNAV (my estimates are about $1.50 and $1.20, respectively), both companies need to do more to unlock value.
3. Heeton - Many profitable launches are in the works, including the Hong Leong Gdn site. The big one, of course, is the redevelopment of El Centro at Tg Pagar, which will be highly profitable. Existing tenants in the building are already asked to leave.
Assuming a GFA of 60,420 sq ft and ASP of $3,000 psf, I arrive at a sales value of $181m. I believe the book value of the present building plus construction cost for the new one adds up to about $85m, giving Heeton a gross profit of perhaps $96m, or 43ct per share.
On a per share basis, the profits from Heeton's many JVs with the likes of Oxley are much higher than the other JV partners' because of its fewer number of outstanding shares (Heeton: 223m shares, Oxley: nearly 3 billion shares).
On the negative side, Heeton has failed to move units at Lumos and I Liv At Grange. Nevertheless, RNAV of as high $1.60-$2 should provide price support.
4. HPL - I like this one for its compelling story of "the biggest owner of land along Orchard Road". I also like the fact that investors who sell out of SC Global may shift money to HPL, for the same reason Wheelock likes and owns both counters.
5. KSH - Earnings and good dividend payout stories, with RNAV above $1.
6. Amara - laggard among my counters, but company has 2 small parcels of land in River Valley and Newton bought at low prices, which may provide some catalysts. It recently sold more units at Killiney 118, which will probably TOP in Q1 2013.
7. Bonvests - the "hidden" asset in Bonvests could be its prime Sheraton Towers. Interestingly, Sheraton Towers is grouped under "property, plant and equipment". This value is only $247m in its books and may include other overseas hotel assets.
However, Sheraton Towers has 420 rooms. Assuming a value of $1 million per key for this prime freehold hotel, that will conservatively value the hotel at $420m.
Any future redevelopment of Wheelock Place may also involve Bonvests' Liat Towers, mainly because Liat Towers has a big Orchard Road frontage.
NextInsight file photos
8. Roxy-Pacific - I like its management a lot. Discount to RNAV is not as attractive, but management's agility and ability to execute is the main reason I still own this one.
9. SC Global, Bt Sembawang, Ho Bee - 3 stocks which I own that have seen their prices move up quite a bit.
Their stories are already well presented by analysts and the press. I am in the process of reducing/switching out.
While I suspect that physical property prices may decline, at last, in late 2013, I am not sure whether property stock prices will move in tandem or in the opposite direction.
It's interesting to note that Kim Eng Securities has 2 talks in Jan/Feb 2013 titled: "Walk the Talk: Property stock picks for 2013". Kim Eng's stock calls are well followed, so prop stocks highlighted by them could see further upside.
Another potential catalyst could be the entry of some of these developers into Iskandar. Already, Rowsley's share price has jumped due to such a piece of news. Since many developers are unable to replenish land in Singapore because of keen competition, I would not be surprised if some of them start to turn to Iskandar, especially when Temasek and investors like Peter Lim have already started paving the way.
Many Singaporeans are also starting to purchase houses/condos in Iskandar, as Singapore property prices continue to rise to "unaffordable" levels. While security in Johor is still a concern, a removal of this "negative" may lead to a surge in demand from Singaporeans. Then the Singapore developers will have to follow the money.
Today, Rowsley has started the Iskandar ball rolling. Come 2013, perhaps other Singapore developers may join in the party. If so, that may give property developer stocks a new boost in the coming years.
Nothing, of course, is certain.
This article was first posted in the NextInsight forum here.
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