OCBC Report 9 Jan 14

MARKET PULSE: City Dev

9 Jan 2014

KEY IDEA City Developments Limited: Physical prices enter bear territory Flash estimates for the URA private residential index showed a 0.8% QoQ decline in 4Q13. We highlight that, except for a flattish -0.1% movement in 1Q12, this is the first time the index has fell meaningfully since the last financial crisis (3Q08 to 2Q09). On a parallel note, mass market prices, a key driver for the housing sector during the liquidity-driven recovery, are also showing signs of losing momentum; flash estimates for Outside Central Region (“OCR”) prices fell 0.6% QoQ in 4Q13 – for the first time since 2Q09 as well. We believe physical prices will enter into bear territory over FY14-15 as the residential sector continues to suffer from the dual impact of existing housing curbs and an onerous physical completion pipeline. Maintain HOLD with an unchanged fair value estimate of S$9.98 (30% RNAV disc.). While execution from management continues to be spot-on and the balance sheet remains strong, we foresee increased uncertainties ahead as the group grapples with weakening fundamentals in its core domestic residential space. (Eli Lee)

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