What is the IQ team’s view for Singapore property developers? Looking at companies like Capitaland, UOL, Wing Tai, etc, some are conglomerates that make money not only from property development, but also from property investment and rental (they are retail and commercial landlords). The main thing is that they are all trading at well below book value, at around 0.5 – 0.6 P/B even before COVID, so they look undervalued. But they also look like value traps because their share price has been quite stagnant for many years, not going anywhere near book valuation.
Developers have more lumpy cashflow and riskier than REITs which have strong and pure recurring cashflows.
In addition, our property conglomerates do not gear up much (developers benefit from gearing to maximise ROE).
I would guess these are some reasons why conglomerates (on top of a conglomerate discount) are priced this way unlike REITs which are pure recurring (thus priced at a premium)
Those conglomerates that you had mentioned tend to have main revenue contribute from property development. Our method of investing is to focus on more recurring side of the business. Hence, we don;t analyse property developers unless their main revenue are rental income or recurring.
The key to invest successfully in property developers is to understand the property cycle. In my opinion, the best time to invest in property developers is when the property cycle start to recover. To understand the property cycle, you have to study the supply of the land and number of properties that are coming online in the next few years.
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