Singapore developers to deliver strong ROE for FY2020-21: DBS Research

Fri, Jan 03, 2020


AMONG key trends in 2020, Singapore's developers are projected to deliver strong return on equity (ROE) for fiscal 2020-2021. This comes on the back of recent mergers and acquisitions (M&As), as well as continued asset recycling activities, DBS Group Research said in an industry note on Thursday.

With the M&A deals contributing from 2020 onwards, the brokerage is anticipating an improvement in ROEs. Asset recycling activities, meanwhile, will raise net asset value.

The brokerage's developer picks are "diversified plays" such as CapitaLand and City Developments Limited (CDL). It is maintaining "buy" on both developers, with their target prices raised.

CapitaLand's target price has been raised to S$4.50 from S$4 with a 21 per cent upside; while CDL's target price has also been increased to S$13 from S$11 with an upside of 19 per cent.

With the CapitaLand-Ascendas-Singbridge merger completed, a new era of growth is expected along with the ability to drive sustainable ROE, the brokerage said.

"CapitaLand's management has shown fast execution on its asset recycling strategy and we believe that China, Japan and Singapore are on the cards in 2020," it added.

A key risk to this view is a slowdown in Asian economies - especially China - which could dampen demand for housing and private consumption.

As for CDL, DBS analyst Derek Tan and Rachel Tan said the developer achieved better-than-expected sell-through rates of 50 per cent across all launched projects despite weak sentiment. A key risk to this view is the government's tightening of the property market - which may result in negative sentiment on CDL's stock.

The industry note also said Singapore's property market has entered its second year of recovery following a supply decline which began in 2018.

The residential sector is expected to remain stable with a risk of government intervention if prices rise too fast.

In addition, the brokerage is watching the actions of upgrader households which would benefit from recent policy measures to improve household affordability.

CapitaLand shares closed at S$3.79 on Thursday, up four cents or 1.1 per cent while CDL shares closed at S$11.18, up 23 cents or 2.1 per cent.