4 Singapore Property Blue Chips – which is the best investment today?

2020-12-06     drwealth
4 Singapore Property Blue Chips – which is the best investment today?

There are 4 property development and investment companies in the Straits Times Index (STI):

These are well known blue chips and most investors might even have own some of them at some point in time.

It is not surprising as many Singapore investors believe that properties are one of the best investments and easier to understand than stocks in other industries.

Let’s now put them together and do some quick comparisons to find out which is the best property blue chip stock to buy.

Asset size

Capitaland has the most assets, almost quadruple of UOL which is in the last place.

Company Total Assets
Capitaland S$82.3 billion
Hongkong Land S$60.6 billion
City Development S$23.2 billion
UOL S$20.7 billion

It is important to note that Capitaland reported that its property portfolio was worth S$133.3 billion as at 30 Sep 2020 and this is higher than S$82.3 billion recorded in its balance sheet. This is because Capitaland has properties held under joint ventures and investment associates, which were accounted by their accumulated earnings instead of their asset values.

City Development is has considerable assets under joint ventures too and I suspect their asset value could be higher than what their balance sheet suggests.

Hongkong Land and UOL have less of such joint ventures relatively. They also do not have REITs under their holdings. Capitaland has spun off plenty of REITs and City Dev has CDL HTrust and some stake in IREIT.

Geographic Exposure

Capitaland has most assets in China (41%) by property value. Singapore is the second largest exposure at 33% of the overall asset under management (AUM – which includes joint venture assets). Some prized assets 100% owned by Capitaland would be Raffles City Chongqing and CapitaMall Westgate in Wuhan.

City Development does not report property values by geography and we have to use “non-current assets” as a proxy. The company has considerable assets beyond Asia which include US (12%) and UK (19%). Most assets are in Singapore, worth 34% of its non-current assets. Republic Plaza and Fuji Xerox Tower are two prominent buildings in Singapore.

Hongkong Land, as its name suggests, has 69% of its assets in Hong Kong and Macau. This is pretty concentrated. The most iconic asset would be Exchange Square, which sits right above the Central MTR station in Hong Kong.

UOL is even more concentrated with 86% of its “non-current assets” in Singapore! Singapore Land Tower and Marina Square are well-known properties locally.

To summarize, here’s their highest asset value by geography:

Companies Highest exposure by geography
UOL 89% in Singapore
Hongkong Land 69% in Hong Kong and Macau
Capitaland 41% in China
City Development 34% in Singapore

We can see that City Development is the most diversified among the four. That said, UOL and Hongkong Land would be make good bets if you want to go long on Singapore or Hong Kong properties respectively.

Property Types

For Capitaland, the three largest revenue contributing property types are residential (33%), retail (29%) and lodging (25%).

City Development classified its segments differently and did not break down property types into retail, office and others. It derived half of its revenue from hotels. A third of the revenue was from property development.

Hongkong Land had equal revenue contribution from its investment properties and selling development properties.

UOL derived most of its revenue from property development (37%) – selling strata-titled residential units to buyers.

I found that 3 companies generated about one third of their revenue from property development except Hongkong Land was at 50%. Property development sales tend to be volatile as construction takes time and property cycles go through peaks and troughs. This could mean that Hongkong Land’s revenue can be more volatile as a result.

City Development has half of its revenue from hotels which would have suffered in 2020 due to Covid-19. But this could also be a potential recovery play.

Controlling shareholders

These property blue chips have strong backings – Capitaland is 51% owned by Singapore’s sovereign wealth fund, Temasek Holdings. The remaining three are backed by tycoons and the richest in Singapore.

Kwek Holdings has close to 49% stake in City Development. Kwek Leng Beng is the patriach and is currently the 8th richest in Singapore. In Oct 2020, the Kwek Leng Peck (cousin of Kwek Leng Beng) quit the board of City Dev as a non-executive director, citing differences in views on how some of the businesses should be ran. I don’t think this would affect City Dev as the power resides with Kwek Leng Beng.

Wee Cho Yaw has a 36.82% ownership in UOL and he is 10th richest in Singapore.

Last but not least, Jardine Strategic (SGX:J37) is the investment holding company in which Keswick family used to manage its empire. Jardine Strategic has slightly over 50% stake in Hongkong Land.

Company Controlling shareholder Ownership Percentage
Capitaland Temasek Holdings 51%
City Development Kwek Holdings 48.55%
Hongkong Land Jardine Strategic 50.41%
UOL Wee Cho Yaw 36.82%

Having a substantial owner in a listed company can either be a good or bad thing. Bad in the sense that the management may take advantage of other shareholders by paying themselves high salary or to privatize the company when the share prices are low. That said, I don’t see such behaviour in these 4 companies and they tend to be on the better side – growing the asset value and giving consistent dividends to shareholders.

Financial metrics

Lastly, I have tabulated the financial metrics which I think would be helpful to size them up.

Capitaland City Dev Hongkong Land UOL
Price $3.12 $7.66 $4.23 $7.44
P/B 0.67 0.68 0.26 0.62
Average P/B
(5 years)
0.75 0.85 0.43 0.64
Discount from average P/B 11% 20% 40% 3%
P/E 7 13 -ve 13
Div Yield 3.9% 1.0% 5.2% 2.4%
ROA 2.6% 2.4% 0.4% 2.3%
Gearing 39.7% 42.8% 11.1% 24.0%

Hongkong Land is the cheapest stock in the group with a record low P/B ratio of 0.26. That’s more than 2x lower than the other 3 stocks. It is also significantly cheaper when compared to its average P/B ratio of 0.43 in the past 5 years. Dividend yield is also the highest at 5.2%. I suspect that it is due to its heavy exposure in Hong Kong which the world witnessed the destruction by the protestors in the city. This weighs heavily on Hongkong Land and here are two contrasting views on this matter – for and against – be sure to read them before buying the cheap stock.

The second cheapest would be City Dev and I would attribute that to its large exposure to hotels. The share price is largely depressed by travel halt due to Covid-19.

UOL is trading closest to its average P/B and suggests that it is fairly priced.

The property stocks don’t look as cheap as before since the big gain in November, after the news of successful vaccines were developed. Capitaland, City Dev, Hongkong Land and UOL gained 22%, 23%, 9% and 18% in Nov respectively.

Conclusion

Property stocks are always a favourite among investors and I have done a quick comparison among them.

Firstly, they are not as cheap as they were prior to Nov and UOL is trading at fair price currently. Only Hongkong Land and City Development had some upside to offer.

But they are not without problems. Hongkong Land has majority of their assets in Hong Kong which the protests have roiled the streets and disrupted the peace in the city. I am not sure if the protests would come back after Covid-19 has been suppressed.

City Development on the other hand had to contend with the lack of business in its hotels. However, I am more positive that Covid-19 is a temporary thing and business should be back in the future.

If you force me to choose one among the 4 stocks, City Dev would be my choice.

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