SINGAPORE (Jan 16): Maybank Kim Eng Research is keeping its “positive” rating on Singapore’s real estate sector as property developer stocks are expected to ride on the market’s cyclical upturn.

“We see more upside in 2018 as households displaced in the en bloc process seek out replacement homes,” says analyst Derrick Heng in a Monday report.

With more than 3,000 households displaced in a flurry of en bloc transactions last year, Heng forecasts that developers could sell some 12,000 units in 2018, up from total new home sales of close to 10,700 units a year ago.

“Consultancy and media reports suggest that 28 projects with almost 13,000 units could be launched in 2018. We believe strong sales and potential price hikes seen at these new launches is a potential catalyst to watch for developers under coverage,” Heng says.

Even as mortgage rates for SIBOR-pegged loans have climbed by some 50 basis points year-on-year to about 2.5%, Heng opines that the uptick is “manageable”.

“While the rate hike is a dampener to property demand, we believe it is widely anticipated and should not come as a surprise,” says Heng. “Our updated data points showed that affordability indicators remain healthy.”

“Overall, affordability of homes in Singapore is not excessive,” he adds.

Maybank’s preferred picks among the developers are UOL Group and City Developments (CDL) as the best large-cap proxies, as well as GuocoLand and Bukit Sembawang for their compelling valuation in the mid-cap space.

The brokerage has “buy” recommendations on all four, with target prices at $9.85, $13.80, $2.95, and $8.25, respectively.

As at 4.23pm, shares of UOL are trading 2 cents higher at $9.36; shares of CDL are trading 21 cents higher at $13.57; shares of GuocoLand are trading 4 cents higher at $2.30; and shares of Bukit Sembawang are trading 5 cents higher at $6.44.

  Rating Target Price RNAV discount (%) P/BV (x)
UOL Group Buy $9.85 (15) 0.85
City Developments Buy $13.80 (6) 1.26
GuocoLand Buy $2.95 (38) 0.68
Bukit Sembawang Buy $8.25 (38) 1.37