Not vested. From DMG:-
SC Global: Crème de la crème (BUY\S$1.60\Target S$2.30)Brandon Lee (62323891,
[email protected])
Initiate coverage with BUY and S$2.30 target price, a 20% discount to our FY10F base case RNAV of S$2.88. We like SC Global Developments’ (SCGD) 93% (of RNAV) exposure to Singapore’s prime and luxury residential segments, which are exhibiting inchoate signs of recovery and renewed interest amid increased foreign purchases, improved macroeconomic indicators and upcoming IRs.
We remain confident of management’s proven calibre in setting benchmark prices for its exclusive projects, implying a high possibility of the stock trading up to or above our RNAV during a broader property upcycle. Unsold inventory of ~ 385 units (~ 905,000 sf in GFA) is more than sufficient for SCGD to ride on the high-end recovery within the next six to nine months. Net gearing of 2.46x should improve upon the progressive recognition of S$750m in unbilled sales.
Pureplay luxury residential proxy, characterised by benchmark pricing ability. SCGD is the only listed property developer offering pure high-end residential exposure in Singapore, where prices remain 15 – 25% off their 4Q07 peaks. Out of its 93% (of RNAV) high-end exposure, luxury and prime projects account for 94% and 6 respectively. For every 10% change in residential prices, we estimate its RNAV will change by 24%.
Management’s ability to set benchmark prices is unrivalled, best evidenced by an impressive 42 – 53% premium pricing of its three existing projects over nearby developments. SCGD also gives a regional real estate exposure through ASXlisted
50%-owned AVJennings and 60%-owned Kairong Developments, which both develop mass
affordable housing projects in Australia and China respectively.
Ample landbank to participate in luxury recovery, writedowns and defaults unlikely. SCGD’s unsold inventory of ~ 385 units should allow it to participate in an imminent high-end recovery, where management expects to occur nearing the IRs’ opening. Aside from three existing projects, management intends to launch Seven Palms in end-2009 or early-2010.
Book values for its residential sites appear inexpensive having written down S$30m in FY08. Despite a high proportion of foreign buyers for its projects, a historically low sub sale transaction rate and buyers’ strong holding power should remove worries of speculative activity and DPS defaults/walkaways.
Upside potential exists despite outperformance. SCGD outperformed the STI and its peers over the past year. However, we believe the stock remains undervalued at current P/B of 1.49x, vs. average of 1.81x during 4Q06 – 1Q07 when physical market for luxury projects first showed tangible recovery signs.
It hit an apex of S$3.34 (adjusted for sub-division) in Jul 07, 5 months before residential prices peaked in 4Q07.
It's all about "how much you made when you were right" & "how little you lost when you were wrong"