Response was largely positive. We met up with clients in the UK while marketing the Singapore property sector. Clients were positive on our top picks, which are CapitaMalls Asia (CMA SP) and Wing Tai Holdings (WINGT SP). In addition, many shared our view that the outlook for the Singapore office sector remains challenging on the back of anaemic demand and difficult economic conditions.

CMA piques interest. CMA is our top big-cap pick, due to its retail property focus and expected growth in its China operations. Clients were generally very receptive of this idea, although some were slightly concerned about a potential oversupply of retail space in China. In response, we believe that CMA’s strong track record and extensive tenant network sets it apart from its competitors. In addition, as most of its malls cater predominantly to necessity shopping, we expect the Chinese business to be as defensive as its Singapore one. We have a BUY recommendation with a target price of SGD2.09.

Selective exposure into Singapore residential sector. We believe that on balance, the high-end residential segment will be the flavor of the year in 2013, particularly when international investors continue to seek safe havens, underpinned by a strong Singapore dollar. Conversely, we expect prices in the mass market segment to correct by 10% by end-2013 amid ample supply and mounting buyer’s fatigue. Wing Tai is our top mid-cap pick to gain exposure into the high-end segment, backed by a sound balance sheet and our forecast annual dividend yield of ~4%. We have a target price of SGD2.10 for a potential upside of 25%.

Office sector fundamentals remain weak. In light of continued consolidation by Financial Institutions, leasing activity has been restricted mainly to small occupiers seeking spaces typically not exceeding 20,000 sq ft each. We continue to expect a further 10% decline in both Grade A and Grade B office rents by end-2013, as the global economy continues to show signs of softening. In addition, the government has emphasized that it stands ready to ensure an adequate supply of premium office space to strengthen Singapore’s competitiveness as a business hub, which supports our view that office rents are unlikely to grow anytime soon.

Stick to stock-picking. As global economic indicators continue to weaken, and Europe remains a persistent worry, we continue to advocate stock-picking for property names with strong balance sheets and growth catalysts. CMA and Wing Tai are strong candidates that fulfill these criteria and we reiterate our BUY calls on both these names.

Source: Maybank Kim Eng Research - 2 Oct 2012