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Singapore Developers: No Surprises

Thursday, 03 September 2015
The private residential property index fell by a further 0.9% q/q in 2Q2015, the 7th
straight quarter and the longest drop in 13 years. In total, the price index has fallen by
6.7% from the recent peak in 3Q2013. Meanwhile, vacancy rate of completed private
residential units increased to 7.9% in 2Q2015 (from 7.2% in 1Q2015). It is the highest
vacancy rate recorded since 8.4% in 4Q2005. With sales remain weak and huge
supply coming on stream, vacancy rate is likely to be on the uptrend going forward. As
such, we continue to expect private residential home prices to fall by 5%-15% over
2015-2016 as oversupply situation, coupled with higher interest rate outlook will keep
buyers on sidelines.
Singapore developers under our coverage have reported their quarterly results ending
June 2015. Overall, no major surprises as developers continue to be affected by
governments cooling measures and recorded weaker sales volumes from domestic
residential projects. On the other hand, gearing levels for Singapore developers under
our coverage remain largely stable, with net gearing ratios kept below 0.6x, except
GuocoLand Ltd. That said, we think there are a few developments in some companies
that are worth highlighting.
Figure 1: Net Debt to Equity - Singapore Developers (as at 30 Jun 15)

GT Institutional Sales
Tel: 6349-1810

Sources: Companies, OCBC estimates

Lee Chok Wai, CFA

+65 6722-2215
ChokWaiLee@ocbc.com

03 September 2015

Figure 2: Net debt to EBITDA - Singapore Developers (as at 30 Jun 15)

Sources: Companies, OCBC estimates * EBITDA calculation excludes other income/expenses (net) and shares of results of
joint ventures and of associates

CapitaLand (CAPL)
CAPLs net gearing ratio increased to 0.57x as at end-2014 from 0.39x in end-2013, mainly due to
privatization of CapitaLand Mall Asia. Since then, we have seen improvement with 1H2015 ratio
standing at 0.53x.
Furthermore, CAPL remains active in executing its capital recycling strategy. In 2015, the group has
announced the divestment of its 30% stake in PWC Building (SGD150.0mn), Bedok Mall
(SGD783.1mn) to CapitaLand Mall Trust as well as several serviced residences and rental housing
properties in Australia and Japan (SGD372.8mn) to Ascott Residence Trust, raising a total of
~SGD1.31bn.
Meanwhile, to boost the groups digital offering, wholly-owned The Ascott Ltd (Ascott) is leading a
consortium to invest SGD67.7mn in Tujia, Chinas largest and fastest growing online apartment
sharing platform (Chinese version of U.S. home-rental website Airbnb). Besides, Ascott will also form
a joint venture with Tujia (initial capital of SGD54.2mn) to operate and franchise serviced apartments
in China. This will provide Ascott with a pipeline of apartments units to expand its portfolio in China,
where it targets to achieve 20,000 units by 2020. Although we do not expect significant contribution
from this platform in the near term, this is positive for CAPL in the longer term as it continues to grow
its recurring income business.
As at end-June 2015, CAPLs total asset under management was SGD44.1bn while total REITs/fund
management fees earned in 1H2015 were SGD93.1mn. Going forward, part of CAPLs fund
management strategy is to set up 6 new funds worth up to SGD10.0bn by 2020. This strategic move
should continue to grow CAPLs fee-based income. In July 2015, Ascott had partnered with Qatar
Investment Authority to establish an USD600mn joint venture to invest in serviced residence projects
globally.
In August 2015, it was reported by the media that CAPL has made an offer for BlackRock Incs Asia
Square Tower 1, an office building in Singapores central business district (estimated to be worth
>SGD3.5bn). Details remain scant and it was not clear whether CAPL or its private equity funds were
involved. We will monitor this event closely but we believe funding is not an issue given CAPLs cash
balances and available undrawn facilities of ~SGD6.6bn as at end-June 2015.

Treasury Research & Strategy

03 September 2015
GuocoLand Ltd (GLL)
GLLs FY2015 (end-Jun) net profit was down 25.6% y/y to SGD226.4mn mainly due to lower fair
value gain from investment properties and absence of one-off gain from disposal of subsidiaries.
Nonetheless, gross profit grew 27.3% y/y to SGD397.7mn despite lower revenue (-7.3% y/y to
SGD1.16bn), on the back of better margin achieved due to change in sales mix. Meanwhile, net
gearing ratio improved slightly to 1.40x from 1.46x as at end-FY2014, albeit remained elevated.
On a positive note, in August 2015, GLL announced the disposal of its entire stake in an integrated
mixed-use development (DZM Project) in Beijing, China for ~SGD2.3bn. The net proceeds from the
disposal will be used for general working capital, including repayment of debts of the group. We
estimate that this could potentially reduce the groups net gearing to ~0.7x. We think the disposal is
timely given that GLL has SGD1.61bn of short term debt maturing in less than one year while cash
holdings of SGD663.1mn as at end-June2015 was insufficient to repay these borrowings.
We note that in July 2015, GLL also disposed an office block with gross floor area of 33,297 sqm in
Shanghai Guoson Centre and a 33-storey office building in Damansara City, Kuala Lumpur
(~MYR189mn). Although these transactions are relatively small in sizes, we are positive on the moves
that management is actively reducing the groups high gearing through sales of development projects.
1

As mentioned in our recent report , we upgraded GLLs issuer rating to Neutral from Underweight
following these positive developments.

Hong Fok Corp Ltd (HFC)

In August 2015, HFC announced that it has ceased discussions in relation to the proposed disposal of
its 48.9%-owned Winfoong International Ltd. We view this as a credit negative as the potential
catalyst of reducing its net gearing is no longer there.
Meanwhile, HFC reported 2Q2015 net loss of SGD109,000 (2Q2014: net profit of SGD8.9mn) due to
absence of disposal gain and weak property development business. Net gearing ratio increased
slightly to 0.37x from 0.36x as at end-2014. Nonetheless, there is no near term refinancing risk for the
group given its cash holdings of SGD81.8mn, which is sufficient to cover short term debt of
SGD44.0mn.
Going forward, HFCs free cash flow will remain stretched due to weak earnings and on-going capex
requirement for YOTEL Singapore Orchard Road, a 30-storey hotel and a single-storey commercial
block. That said, we believe that HFC can improve its credit metrics if necessary by recycling its
investment properties, which include The Concourse and International Building.

OCBC Asia Credit Monthly Credit View - 020915

Treasury Research & Strategy

03 September 2015

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