UAE, Dubai, construction project at the Mall of the Emirates on Sheikh Zayed Road

1 Property Developer We’re Keeping An Eye On

Alvin Chow
Alvin Chow

I wrote about the potential property boom in Singapore previously and how you can take advantage of it without buying physical properties. I have already suggested investing the stocks of real estate agencies and I will talk about real estate developer stocks in this post.

Property Development Process, in a nutshell

It’s a lengthy process:

  1. The developer has to bid for land, or attempt to en bloc an existing property,
  2. then engage architects to design the masterpiece,
  3. finally sales commences once the showflat and marketing collaterals are up. Here, they work with real estate agencies to promote the units.
  4. Payments will be collected as the building gets constructed. It isn’t surprising to pay a deposit now and wait for a project to complete in 4 years’ time.

Having such a long process makes it challenging for developers to catch the property cycle accurately (buy low and sell high) because of the long timeline of property development.

Since the property craze is warming up again, it would be a better idea to look existing for-sale properties and the respective property developer behind them. (As we’re doing this exercise to find potential investment ideas, we will focus only on property developers listed in SGX.)

We run through key numbers to figure out potential winners in this cycle:

List of new property launches by publicly listed developers

I identified 12 projects currently on sale, that belonged to publicly listed developers.

  1. Dalvey Haus – KOP (SGX:5I1)
  2. The M – Wing Tai (SGX:W05)
  3. The Linq – BBR (SGX:KJ5)
  4. The Atelier – Bukit Sembawang Estates (SGX:B61)
  5. The Avenir – GuocoLand (SGX:F17) 40%, Hong Leong Realty 40% and Intrepid 20%
  6. Kopar – Chip Eng Seng (SGX:C29)
  7. Van Holland – Koh Brothers (SGX:K75)
  8. Hyll on Holland – Far East Consortium Properties 80% and Koh Brothers (SGX:K75) 20%
  9. Clavon – UOL (SGX:U14) 80% and UIC (SGX:U06) 20%
  10. Cairnhill 16 – Tiong Seng (SGX:BFI) 60% and Ocean Sky Int (SGX:1B6) 40%
  11. Leedon Green – Yanlord Land (SGX:Z25) and MCL Land (subsidiary of Hongkong Land)
  12. Penrose – CDL (SGX:C09) 40% and Hong Leong 60%

This list alone doesn’t tell us about the revenue contribution to the developers, from these projects.

We’ll need to estimate the sales figures and compare them to the developers’ existing revenue.

How I estimated Sales Figures

At this stage, it is difficult to estimate the sales figures for two reasons:

  • Sales volume is still low.
  • Selling prices may not be released, and may vary according to units and negotiations with the buyers.

Hence, I’ll simplify the estimation by taking the Gross Floor Area (GFA) x Estimated Price Per Square Foot (psf).

Here are the results, as compared to the developers’ 2019 revenue:

Projects of significant value to the developers

ProjectSales EstimatesDeveloper’s Revenue in 2019% of Developer’s RevenueRemarks
Dalvey Haus$158m$19m832%GFA = 49,053 sqft
Price ~ $3,228 psf
The M$790m$323m245%Selling prices were made known for each unit.
The Linq$167m$128m130%GFA = 92,622 sqft
Price ~ $1,800 psf
The Atelier$273m$370m74%GFA = 116,278 sqft
Price ~ $2,500 psf
The Avenir$1,705m$927m74%GFA = 542,347 sqft
Price ~ $3,144 psf
Kopar$772m$1,056m73%Selling prices were made known for each unit.
Van Holland$215m$354m61%GFA = 73,396 sqft Price ~ $2,934 psf
Hyll on Holland$668m$354m38%Koh Brothers has 20% stake.
GFA = 267,356 sqft
Price ~ $2,500 psf
Clavon$925m$2,283m (UOL)
$795m (UIC)
32% (UOL)
23% (UIC)
GFA = 623,477 sqft
Price ~ $1,500 psf
Cairnhill 16$129m$406m (Tiong Seng)
$24m (Ocean Sky)
19% (Tiong Seng)
216% (Ocean Sky)
GFA = 42,932 sqft
Price ~ $3,000 psf
Leedon Green$1,437m$3,835m (Yanlord)
$3,167m (MCL)
19% (Yanlord)
23% (MCL)
GFA = 505,175 sqft
Price ~ $2,500 psf
Penrose$786m$3,429m9%GFA = 523,948 sqft
Price ~ $1,500 psf

You may have noticed that for smaller companies, sales of a property tend to have an outsized impact to their revenue. This shouldn’t come at a surprise.

4 Developers Who May Experience >100% Impact to Revenue

They are:

(do note that I’m using revenue for simplicity and consistency. In cases of joint ventures, the sales will not be recognised as revenue but a profit/loss item in their income statement.)

Wing Tai is the most prominent among these four.

It was reported that Wing Tai has sold 70% of The M on 24 Feb 2020. But Wing Tai has not released any financial reports since 31 Dec 2019. Hence, we do not know the actual financial impact yet.

Their latest statement was regarding a profit guidance:

Following a preliminary assessment of the unaudited Group results for the financial year ended 30 June 2020 (“FY2020”) and taking into account the adverse change in the fair value of the investment properties owned by its subsidiaries and associated company, the Board of Directors wishes to issue a profit guidance that the Group expects to report a significant decrease in net profit attributable to shareholders for FY2020 as compared to the previous financial year, arising mainly from the fair value losses from the investment properties.

Excluding the fair value losses from the investment properties, the Group is expecting to report a higher underlying net profit for FY2020 as compared to the previous financial year.

In simple English; Wing Tai is expecting lower profits from their investment properties (because of lower valuations caused by the economic outlook). But excluding this non-cash impact, the profits would be higher.

This means that although they expect a lower profit in 1H2020, they remained profitable through the Covid-19 and circuit breaker period.

Healthy Sales in FY20

It was reported that 25% of The M was sold by 30 Jun 2019. This means 45% of the sales were done in FY20.

I expect to see stronger development sales when Wing Tai releases its 30 Jun 2020 results.

The M by Wing Tai. Source: New Launches Review

The book value per share for Wing Tai is above $4 while the share price is only at $1.65 at the time of writing. But undervalued stocks tend to be unloved especially during times where hot growth stocks are in vogue.

When we analyse undervalued stocks, we look out for potential catalysts which could help unlock their true value. For property developers, a significantly profitable project sales is one such possibility.

Potential Risks

It wouldn’t be prudent to look solely at the upsides. There are two major issues that could affect Wing Tai’s performance.

Firstly, their could report huge drop in profits on their investment properties, due to lowered property valuations caused by the economic outlook.

Another issue that may drag Wing Tai’s performance, is their retail business. It had been facing challenges from e-commerce competitors, even before Covid-19 happened.

Wing Tai runs retail stores in S.E.A. for brands such as Adidas, Fox Kids and Baby, Topshop, Burton Menswear London, G2000, Uniqlo, Cath Kidston, Miss Selfridge, Wallis, Dorothy Perkins, TFG London, Warehouse, DPAM and Topman. Out of which, I’m only optimistic about Uniqlo simply because I personally buy cloths from their physical shops.

If you want to be sure about their performance, wait for Wing Tai’s official financial results before deciding.

Conclusion

I believe that the property market is heating up again given various points of reference. But for most, buying a property may be too big a bet to take. We can instead consider property developer stocks.

Many of these stocks are undervalued – selling way below their book values.

But value stocks have been underperforming for years and the chances of buying and holding a value trap has increased. Hence, looking out for catalysts that could help unlock their value is important, at this juncture. Looking at developers who can make a significant gain from existing projects is one such catalyst.

I have compiled a list of projects and compared to the developers’ revenue above. Wing Tai seems to be a potential play but who knows, there could be others in the list that may do well too.

All the best!

Alvin Chow
Alvin Chow
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.
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