OCBC Report 24 Jun 14

KEY IDEA Singapore Residential Property:  Demand is out there but price-sensitive We forecast residential prices to dip 10%-20% over 2014 – 2015 but see a price crash in excess of 20% to be unlikely, even after accounting for the anticipated physical over-supply and interest rate uptrend ahead. One key argument against a crash is that we believe there is a high price elasticity of demand in the market largely due to a prolonged period of physical undersupply from 2004 – 2012. Simply put, significantly more buyers will likely come into the market at lower price points, which will slow the rate of decline as prices soften. Several key data-points had previously corroborated our view – firm sales at d’Leedon and Sky Habitat after significant discounts by CapitaLand, and at attractively priced launches such as UOL’s Thomson Three – and we believe the latest set of sale figures in May-14 further supports this. Our top picks in the developer space are CapitaLand [BUY, FV: S$3.79], Keppel Land [BUY, FV: S$4.09] and OUE [BUY, FV: S$2.87]. (Eli Lee)

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NEWS HEADLINES - US stocks ended Mon’s session marginally lower, with the S&P 500 and Dow Jones Industrial Average pausing after six straight days of modest gains. - Frasers Hospitality Trust is slated to raise S$365.2m from its initial public offering and from cornerstone investors. - Nam Cheong has sold two accommodation work barges worth a total of US$84m to Perdana Petroleum Bhd. - Olam International announced on Mon a partnership with Mitsubishi Corporation of Japan (MC) to grow its Australian grains business. - Changi Airport saw the number of passengers edge up 2% YoY to 4.37m in May, although travel demand for certain South-east Asian routes such as Bangkok and Phuket remains weak. - Consumer price inflation in Singapore picked up a little more than expected to 2.7% in May. - The number of properties up for auction by mortgagees (or lenders) as well as their share of the number of properties going under the hammer has hit a quarterly high in 2Q14. - The Ascott Limited, CapitaLand's wholly owned serviced-residence unit, has secured contracts to manage four more properties in China. - Tiger Airways is considering all its options regarding the four aircraft set to return to the group, with associate Tigerair Mandala being grounded permanently from next month.