• Large exposure to SG residential market
• Pressure on sales and margins
• Cut fair value to S$9.59

Likely to be More Significantly Impacted

To recap, the Singapore government announced a set of cooling measures on the Singapore residential property market on 5 Jul. This includes raising the Additional Buyer’s Stamp Duty (ABSD) rates (except for Singapore Citizens and PRs making their first residential purchase) and tightening the Loan-to-Value (LTV) limits for all housing loans granted by financial institutions.

The implications of these measures would likely be weaker demand from both locals and foreigners, coupled with greater caution on future land bids and en-bloc transactions by developers. We expect City Developments Limited (CDL) to be one of the worst hit among the developers under our coverage. Based on our previous forecasts prior to the announcement of the cooling measures, CDL’s Singapore residential projects formed ~30% of our GAV forecast.

Tables Have Turned; Softening Our Assumptions

Following this latest round of stiff government cooling measures, we expect CDL’s local residential sales momentum and margins to come under pressure. We apply a significantly higher RNAV discount of 40% (previously 5%), as our previous thesis of CDL being a key beneficiary to the Singapore residential market upcycle given its large land bank would now likely work against them after these new measures.

Given the expected decline in transaction volumes at least in the near-term and likelihood of a slowdown in price growth for physical properties in Singapore, we now view CDL’s ~3.5k (based on our estimates, as at 31 Mar 2018) unsold inventory (including future launch pipeline) as a key risk ahead.

We also scale back our ASP and sales volume assumptions for CDL’s Singapore residential projects, and thus derive a lower fair value estimate of S$9.59 (previously S$15.78). Although CDL’s share price slumped 15.6% to S$9.46 on 6 Jul 2018 after the cooling measures were announced, we believe the negative investor and buyer sentiments may curtain a meaningful rebound in its share price in the near future.

Source: OCBC Research - 9 Jul 2018