Property plays are trading at steep discounts from book value and this may make them ripe for the picking, according to a DBS Group Research report published yesterday.
As earnings visibility is clouded by the current economic uncertainties, a less volatile valuation parameter to consider is the book value of assets, the report said.
About 60 per cent of the stocks listed on the Singapore Exchange are currently trading below their book value and the research house said: “Among the stocks in our coverage list, most of the property-related stocks are trading below book.”
Among the property counters, Wing Tai is the most undervalued, currently trading at 0.5 times price-to-book value (P/BV). Wing Tai offers particularly good value because of its upcoming launches of new developments, DBS said, noting that most of its projects in Singapore are at the high end of the market.
DBS also noted that Orchard Parade, in which Far East Organization has a 58.25-per-cent stake, has been trading at 0.51 times P/BV. DBS said the possible injection of some assets held by the group into a real estate investment trust made it attractive.
At 0.6 times P/BV, Tuan Sing is currently trading close to its 10-year historical average. DBS said a good entry level for Tuan Sing would be closer to S$0.23, or a P/BV of about 0.47 times.
DBS said Tuan Sing’s property unit contributed 77 per cent of its profit in FY2010 and potential redevelopment of its office properties would be a further catalyst.
Despite the value seen in these stocks, DBS did warn that it “does not rule out the possibility of further weakness in share prices given the current uncertainties in the global market”.
“It would be a more prudent move to consider these stocks should the stock market fall further, preferably closer to the STI (Straits Times Index) at the 2,600 level,” it said.
The STI fell 2.9 per cent yesterday to close at 2,743.58, with the property sub-index down 3 per cent, as fears of a Greek default on its sovereign debt deepened.
Source : Today – 13 Sep 2011