CFA Society Singapore
SINGAPORE (March 6): Deutsche Bank likes OUE for having the most opportunities for RNAV crystallisation among the developers under its coverage.
Given the likelihood of the US Bank Tower divestment and thus a special dividend, Deutsche ranks OUE our top Singapore mid-cap pick.
In a Friday report, Deutsche also reiterates its strategy to “hold the developers and trade the REITs” through this RNAV upgrading cycle.
“Our top picks for the developers are CapitaLand and City Developments,” says Deutsche.
And although UOL has lagged behind CapitaLand and City Developments and is trading at 0.65x price-to-book, Deutsche sees less likelihood of value unlocking in the near term, given the complex holding structure.
“We believe that the key catalyst for OUE will be the crystallisation of RNAV. With the completion of asset enhancement exercises at US Bank Tower and OUE Downtown, we believe there is increased potential for divestments and potential special dividends,” says Deutsche.
Currently, US Bank Tower has achieved 80% committed leasing, while OUE Downtown is 87% occupied for the office space and 70% pre-committed for the retail space.
With progressive leasing, Deutsche believes these two assets could be divested over the next two years.
Progressive sales at Twin Peaks could also provide an additional catalyst, and recent offers for International Healthway Group could help OUE restock its land bank in prime locations.
Meanwhile at developer Wing Tai, the key swing factor remains the sales progress for its two remaining projects, Le Nouvel Ardmore and The Crest.
While sales remain moderate, Deutsche is encouraged by the acceleration in luxury demand.
With Wing Tai set to swing into a net cash position, Deutsche believes the key focus will be on the redeployment or return of capital, and potential funds management platform.
“With significant YTD share price movements, and with a likely quiet March, we think there could be near-term share price consolidation for the developers − the large-cap stocks in particular,” says Deutsche.
While the bank does not expect a sharp rebound in asset value, it does see a recovery and bottoming-out of the sector, which will return the developers to an RNAV upgrading cycle.
“We therefore see any near-term consolidation as a good buying opportunity for the developers,” says Deutsche.
OUE, CapitaLand, City Developments are higher at $1.98, $3.56 and $9.63 respectively.