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3 Low Price-to-Earnings Property Plays
Perspective | 25 March 2014
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By: Shane Goh
Articles (99) Profile

Price-to-earnings (P/E) is one of the most commonly used valuation ratios by analysts. It measures how much an investor is paying for every dollar the company is generating.

For example, if company A made $1.50 per share last year and an investor is paying $7.50 per share to buy the stock, the company’s P/E ratio equals to 5 ($7.50/$1.50).

A company’s P/E ratio tends to be affected by factors such as the industry it operates in, its competitors and the quality of its earnings. In general, bargain hunters seek a low P/E ratio when making an investment.

Since the Fed signalled its intent to taper in May 2013, coupled with various property cooling measures introduced, the FTSE ST Real Estate Index has fallen 22.1 percent at its lowest. The dip in share prices presents us with a potential opportunity to collect property shares on the cheap.

Currently, the FTSE ST Real Estate Index’s P/E ratio stands at 9.5 times. Here are three real estate firms, in no particular order, with lower P/E ratios.

Low P/E Property Plays

1. Ho Bee Land
Ho Bee Land is a real estate development and investment company. Its portfolio covers residential, commercial and high-tech industrial projects. Notable developments include Cape Royale in Sentosa Cove and The Metropolis in One-North.

Ho Bee’s earnings have grown 44.8 percent annualised over the past five years from $93.1 million to $591.8 million. Its P/E ratio currently stands at 2.4 times.

2. Wing Tai Holdings
Wing Tai Holdings is a property and retail group. Geographically, the company has an Asia Pacific focus on key markets like Singapore, Malaysia, Hong Kong and China.

Wing Tai counts Ascentia Sky at Alexandra View as one of its recent propert developments. Operations for its retail arm include G2000 and Topshop Topman in Singapore.

In the last five years, Wing Tai’s net profit has risen at 18.3 percent compound annual growth rate to $531.1 million in FY13. Presently, it has a P/E ratio of 2.6 times.

3. Keppel Land
Keppel Land is the property division of Keppel Corporation. Keppel Land has a property development segment targeted at residential and commercial projects such as Keppel Bay and Marina Bay Financial Centre. It has a fund management unit that manages Keppel REIT and Alpha Investment Partners.

Over the past five years, Keppel Land has achieved a 31.2 percent annualised growth rate in its bottom line from $227.7 million to $885.9 million. It currently trades at a P/E ratio of 5.6 times.

Investment Risks

    Although a low P/E stocks tend to offer a bargain, we need to assess the other factors of the firm.

  • Why is it trading at a lower P/E compared to its peers?
  • Has it been trading at a low P/E all this time?
  • Are there aspects of the company’s business that warrants a discount to its competitors?
    Industry factors

  • Potential hike in interest rates as the Federal Reserve reduces its bond-buying programme
  • The total debt servicing ratio introduced in June 2013 will lower an investor’s ability to borrow money from the banks
  • Increased stamp duties since 2013 have resulted in higher costs when buying a residential property in Singapore
    Time bias

  • The global financial crisis took place in 2008
  • This could potentially skew financial performances over the past five years as the economy was weak at that time, leading to a lower starting point for net profit

SI’s takeaway

While real estate is an asset class close to Singaporeans’ hearts with the country’s space constraint and an ever growing population, we have to be weary of the pessimistic outlook in the near term.

Just as the cooling measures have derailed speculators from flipping properties, I do not expect a quick gain from picking up shares of real estate companies.

*: Based on 24 March closing prices

Currently pursuing his Chartered Financial Analyst qualification, Shane provides coverage on the property, consumer and environmental sectors at Shares Investment.

Please click here for more information about this author.

Ho Bee Land  2.380 -- --   
Business: Invests in & develops real estate properties in Singapore. [FY18 Turnover] Rental income (91.3%), sale of development properties (8.7%).

Insight: Apr-19, 1Q19 revenue rose 7.7% due to increased re... Read More
Wing Tai Hldgs  2.080 -- --   
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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