New buyer stamp duties stifle UOL unit sales

One residential project has been especially vulnerable, says OCBC.

The 577-unit residential project at Bedok Reservoir which began sales last week is underperforming.

It doesn't help that its substantial foreign and PR market, which currently comprise more than 20% of buyers, are burdened with additional buyer stamp duties.

But OCBC remains upbeat for the rest of the company due to its solid management team and planning ahead of the 2012 cooldown.

Here's more from OCBC:

Timed this cycle well. We continue to prefer UOL due to its limited domestic residential exposure, which would shelter it against residential uncertainty ahead. In addition to the recently acquired St. Patrick Garden (~200 units), UOL has only the Lion City site in its domestic landbank (~240 units). We believe that management has timed this cycle well and is poised to outperform as they replenish their landbank in an anticipated downtrend. Net gearing on the balance sheet is at a relatively benign 38% and we expect this to fall as progress billings for previously sold projects roll into earnings ahead.

Bet on management's land-banking acumen. While UOL's earnings over FY12-13 would be underpinned by previously sold-out projects, additional forward visibility would depend on landbank replenishment. We think management's tender as a sole bidder for the Sims Ave site showcased their landbanking acumen and competitiveness in mixed developments.

While the bid was ultimately rejected, we see ample landbanking opportunities ahead through the government land sales program. En-bloc acquisitions, however, appear more unlikely in our view with sellers not lowering their expectations sufficiently thus far, and recent policies requiring developers to pay additional buyer stamp duties on projects not completed and sold-out within five years.

Archipelago somewhat below expectations. Its 577-unit residential project at Bedok Reservoir, Archipelago, was launched for sales in the first week of Dec 11 and has sold over 100 units to date at an average selling price of S$1,000 psf. The pace of sales and price levels came in somewhat below expectations. Moreover, over 20% of buyers so far were reportedly foreigners and PRs; recent measures imposing additional buyer stamp duties would likely impact sales. We pare our ASPs assumptions and reflect this in a lower fair value estimate. Lion City is expected to be launch-ready by 1Q12 but management would likely take a wait-and-see approach to its exact launch timing, depending on market conditions. In China, the Tianjin site would be launched shortly at ~RMB20k psm and we anticipate the site would perform well, given its location and expressions of interest from buyers so far.

Maintain BUY with S$4.77 fair value. Maintain BUY with a lower S$4.77 fair value estimate (30% discount to RNAV) versus S$5.17 previously as we pare ASP estimates and apply a heavier RNAV discount to reflect heightened downside from continued macro volatility.