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OCBC: 2 Property Stocks to Buy In Non-Performing Quarter
Aspire, Hot Picks | 07 October 2015
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By: Lim Si Jie
Articles (169) Profile

Worst Q3 Since 2009

The third quarter was not a quarter to remember for financial markets.

While The Dow closed the quarter with its best day since Sep 15, it is down 7.6 percent for Q3. Q3 2015 was its first negative quarter in the last 11 quarters.. The S&P 500 is down 7 percent for the quarter while the NASDAQ is down 7.4 percent, ending its quarterly winning streak after ten consecutive quarters.

STI: Five Consecutive Month In The Red

With the Singapore market largely affected by movements in the US market, the benchmark Straits Times Index (STI) clocked its fifth consecutive month in the red with a loss of 4.7 per cent, reflecting the slowdown in the Singapore economy on the back of falling Chinese growth. However the STI avoided its six consecutive daily loss by ending 2.95 points (0.11 percent) higher at 2,790.89 on 30th September, taking the year-to-date performance to -17.06 per cent.

The poor performance in the third quarter for the overall Singapore market has led to falling share prices of property developers.

SG Developers PB Ratio Below Nine-Year Average

The share prices of property developers, which had generally suffered lacklustre performances over the last year due to a slowing housing market, saw another leg down in 3Q15 alongside increased volatility in the general market on heightened fears of a Chinese hard landing and uncertainty over a Fed rate hike.


Since 2014, the Straits Times Real Estate Developer Index (FSTREH) has fallen 4.9 percent while its price-to-book ratio dipped to 68 percent, which is one standard deviation below its nine-year average.

Highest Company Buyback (By Developers) in 3Q15 Since 2013 

OCBC highlighted that several real estate developers have taken this opportunity to buy back their undervalued shares. According to OCBC’s estimates, developers on the SGX have spent $242 million in 3Q15 to repurchase shares. This is the highest quarterly figure seen since 2013 and also represents more than eight times the previous high in 4Q13.

According to OCBC, if a company’s balance sheet is healthy and the opportunity cost of capital not excessive, buying back undervalued shares can be an accretive move for shareholders (an acquisition that will increase the acquiring company’s earnings per share).

For developers, the buyback accretion can be particularly meaningful given that most of the Singapore developers are currently undervalued based on underlying real estate assets such as land, homes, malls and offices with relatively firm liquidation values.

Investors Takeaway: Insider Trades Give Property Stocks A Vote Of Confidence

The act of repurchasing company shares is a strong vote of confidence from the boardroom of the company’s undervaluation and future performance.

GLP: BUY, TP $3.07


OCBC highlighted that Global Logistic Properties (GLP) began repurchasing its shares on 3 Aug 2015 and have since gone into the market 35 times to purchase approximately 96 million shares worth $213 million. With its firm balance sheet and significant capital headroom (relatively low net debt to equity at 11.0 percent), OCBC believes that GLP’s repurchasing of its current shares trading at a 34 percent discount to its Revalued Net Asset Value (RNAV) and 15 percent discount to book represents an effective use of capital.

Wing Tai: BUY, TP $2.58


After a recent downturn in its share price, Wing Tai has entered the market four times in 3Q15 to repurchase $1.0 million worth of shares. Between 4Q14 and 1Q15, the company had repurchased $12.5 million worth of shares when its price to book had dipped to $0.42, which is equivalent to one standard deviation below its 11 year long term average.

With a relatively low net debt to equity at 9.2 percent and $880 million in cash, the group has significant capital headroom. OCBC values Wing Tai’s current share price at a 58 percent discount to book and 57 percent discount to RNAV. This highlights solid long term value in Wing Tai’s shares. The move to repurchase its shares represent an effective use of its capital, particularly as the real estate sector in its key markets slow down and opportunities for capital deployment in the near term remains limited.

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

Wing Tai Hldgs  2.070 +0.02 +0.98%   
Business: Singapore-based property developer and lifestyle company. [FY18 Turnover] Development properties (51.5%), retail (36.5%), investment properties (9.6%), others (2.4%).

Insight: Feb-19, 1H19 revenue rose 7.1% to $193.9m largely ... Read More

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