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SC Global Threading Towards A New Dawn Or A Setting Sun?
Corporate Digest | 16 December 2011
By: Simeon Ang
Articles (125) Profile

SC Global Developments, a leading developer of up-market residences with total assets of more than $2 billion and a land bank of 1.2 million square feet, has some 34 years of property development experience under its belt. In February 2000, the company repositioned itself as a developer of prime residential properties and sees itself as a beneficiary of the previously booming property market.

A New Dawn For Luxury Residences
In its repositioning philosophy, SC Global embraced “The Ultimate Living” experience in all of its developments since then. It has completed developments such as The Ladyhill, The Boulevard Residence and The Lincoln Modern. With its eye focused principally on the luxury residential market, SC Global launched its “Own the Original” campaign where it debuted its collection of luxury residential properties with its flagship development, The Marq on Paterson Hill, which will feature a collaboration with Hermès to create the world’s first apartment fully furnished by the venerated French house. The Marq has continued to lead the luxury property market attaining record prices, with a 3,003 square foot, four bedroom apartment in the Premier Tower recently fetching $20.5 million ($6,850 per square foot).

Despite SC Global achieving yet another record price at The Marq, the luxury condominium market in Singapore continues to be generally soft compared to its peak in 2007. Jacqueline Wong, Head of Residential and National Director at Jones Lang LaSalle (JLL), mentioned that the majority of buyers for luxury condominiums tend to be foreigners. This, however, looks set to change with the recent announcements by the government.

The Sun Sets On The Local Property Market
So, the lowdown on recent developments: the government of Singapore has decided that it wants to pour more cold water on what is deemed as a red hot property market. In what is widely contrived as a populist motion, the government has instituted an additional buyer’s stamp duty of 10% on private property purchases. As dawn broke upon the news, a general malaise spread through the Straits Times Index (STI), hitting property developers like SC Global hard. Shares in SC Global fell 6% to $1.10 on the back of the announcement on 8 December, trading near 2 month lows of $1.08. The stock fell even further when trading resumed on 9 December, falling 10% of 8 December’s closing price to $0.99, ending the week 18.2% lower. In perhaps a sign that investors were looking to offload the stock, over 1.67 million shares, representing 95.3% of total volume for the week, traded hands in the two-day window since the announcement.

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Source: FactSet - Brokers’ Recommendations On SC Global Chart
Source: FactSet – Brokers’ Recommendations on SC Global Chart

Analysts were quick to chip in with their take on the new property development landscape. Analysts at DBS Vickers pointed out that volume demand would likely be impacted by the new cooling measure, rather than prices. It expects demand for mid-to high-end residential properties to be more affected than others. In line with that expectation, it felt that stocks such as SC Global should be avoided for the time being. UOB-Kay Hian echoed this sentiment with its continued “Sell” call on the stock. UOB-Kay Hian re-iterated its cautious view as it opines that the move will result in a sharp slowdown in home buying demand, especially in the high-end segment where foreigners constitute as high as 50% of buyers.

Breaking It Down
However, analysts at UBS feel that the correction to share prices might only last for the remainder of this year with a potential pick up after 1Q12 which it views may be the worst point of the year-on-year GDP cycle. Typically, real estate performs the best in the period from the growth inflexion point.

Separately, SC Global has on paper, a better footing as compared to its counterparts. Its Price/Sales ratio of 0.46 beats the sector (4.2) and market average of 1.3, underlining SC Global’s strength when it comes to the sale of its properties in its pipeline. In further evidence of this, SC Global recorded strong revenue growth for the financial period ended 30 September 2011. Group revenue increased 25% year-on-year to $680.4 million, with profit more than tripling to $150.9million. Net margins have consistently remained above the 20% over the last three quarters and have indeed helped pushed the company forward. In addition, its price/earnings ratio, as of 30 September 2011, was 2.8 versus the sector average of 4.9 and market average of 10.3.

Source: Factset – SC Global Financial Ratios

Turbulent Days Ahead
The aforementioned statement could very well be an understatement given the state of affairs faced by investors daily. As volatility in the stock market continues to be the cause of nightmares for many investors these days, it would take serious study as well as thought before an astute investor makes a decision to buy or sell. However, given its otherwise good performance to date, SC Global could well be a diamond that has been encrusted with the dirt of volatility.

While recent developments could present downside risks to the stock, we believe that SC Global could well prove to be a lustrous investment in the future, underlined by its substantial landbank focused on premium space in land-scarce Singapore. It claims 1.2 million square foot of gross floor area in prime areas such as Orchard Road, where residential plots are scarce, and Sentosa Cove, the only location in Singapore where foreigners need not be PRs to own a landed home, thus highlighting the additional premium that SC Global’s landbank possess. This additional premium could just be the added allure needed to attract the ultra-rich. And as we all know, the ultra-rich have no qualms dishing out the dough.

Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

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