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Turnkey
Coming up trumps
Event
We stated last month that we were sticking to our guns, despite our portfolio
positioning leading to underperformance in February. However, arguably for
all the wrong reasons, given the devastating earthquake and tsunami in
Japan, sticking to our guns has seen us coming up trumps in March. We
believe the sector remains compelling, with deep discounts to NAV and with
momentum having turned in March with the Asia Pacific property sector
returning to net earnings upgrades.
Impact
Sector returns to NET UPGRADES in March 2011. Consensus earnings
growth forecasts for FY11 marginally improved in March to 12.71% from
12.65% in February. The earnings revision ratio improved to net upgrades at
1.15x, driven by significant upgrades from Australia, China and, amazingly,
Japan. Hong Kong recorded net downgrades while Singapore was neutral.
The first quarter of CY11 saw mixed results for the sector; overall however,
1Q11 will be recorded as a broadly neutral start to the year, with a slight net
upgrade ratio of 1.07x.
Trading multiples remain attractive. The start of 2011 has been very
disappointing for the real estate sector in Asia ex. Japan. In USD, it is down
2.6% and underperforming the broader market by ~380bp CYTD. The 12-
month forward PER for MSCI Asia ex. Japan real estate declined yet again in
March to ~12.96x, which is well below the long-run average of ~14.80x. The
sector is currently trading at a price to book value of 1.19x, marginally above
the long-run average of 1.12x. The sector P/CF ratio continued to improve in
March to 14.81x, down from 16.33x in January and is now well below the
long-run average of 15.62x.
Selective positioning in China. We have reduced our underweight position
in China by making concentrated selective overweight investments in COLI,
Guangzhou R&F and Evergrande. Offsetting the continued overhang of
potential further government intervention, China continues to trade well below
the long-run average discount to NAV, 12-month forward PER and P/BV.
Furthermore, the sector recorded a strong reporting season, which led to net
upgrades, a sales lock-in of >70% for FY11 revenue at a higher ASP and
margin, and we believe we have made appropriately conservative contract
sales assumptions for FY11.
Portfolio changes: Decrease weight: Sino-Ocean Land and Cash. Increase
weight: Guangzhou R&F, Evergrande and Mitsui Fudosan.
Regional portfolio: Overweight Hong Kong and Singapore
Overweight: Hong Kong, Singapore, the Philippines and Indonesia.
Underweight: China, Japan, Australia and New Zealand.
Large-caps: Sun Hung Kai, Cheung Kong, Mitsubishi Estate, Hongkong Land,
Swire Pacific, CapitaMall Trust, KREIT Asia, COLI.
Small-caps: Charter Hall, ARA Asset Management, Alam Sutera,
Summarecon Agung and Kenedix Realty Investment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Turnkey
Coming up trumps
Event
We stated last month that we were sticking to our guns, despite our portfolio
positioning leading to underperformance in February. However, arguably for
all the wrong reasons, given the devastating earthquake and tsunami in
Japan, sticking to our guns has seen us coming up trumps in March. We
believe the sector remains compelling, with deep discounts to NAV and with
momentum having turned in March with the Asia Pacific property sector
returning to net earnings upgrades.
Impact
Sector returns to NET UPGRADES in March 2011. Consensus earnings
growth forecasts for FY11 marginally improved in March to 12.71% from
12.65% in February. The earnings revision ratio improved to net upgrades at
1.15x, driven by significant upgrades from Australia, China and, amazingly,
Japan. Hong Kong recorded net downgrades while Singapore was neutral.
The first quarter of CY11 saw mixed results for the sector; overall however,
1Q11 will be recorded as a broadly neutral start to the year, with a slight net
upgrade ratio of 1.07x.
Trading multiples remain attractive. The start of 2011 has been very
disappointing for the real estate sector in Asia ex. Japan. In USD, it is down
2.6% and underperforming the broader market by ~380bp CYTD. The 12-
month forward PER for MSCI Asia ex. Japan real estate declined yet again in
March to ~12.96x, which is well below the long-run average of ~14.80x. The
sector is currently trading at a price to book value of 1.19x, marginally above
the long-run average of 1.12x. The sector P/CF ratio continued to improve in
March to 14.81x, down from 16.33x in January and is now well below the
long-run average of 15.62x.
Selective positioning in China. We have reduced our underweight position
in China by making concentrated selective overweight investments in COLI,
Guangzhou R&F and Evergrande. Offsetting the continued overhang of
potential further government intervention, China continues to trade well below
the long-run average discount to NAV, 12-month forward PER and P/BV.
Furthermore, the sector recorded a strong reporting season, which led to net
upgrades, a sales lock-in of >70% for FY11 revenue at a higher ASP and
margin, and we believe we have made appropriately conservative contract
sales assumptions for FY11.
Portfolio changes: Decrease weight: Sino-Ocean Land and Cash. Increase
weight: Guangzhou R&F, Evergrande and Mitsui Fudosan.
Regional portfolio: Overweight Hong Kong and Singapore
Overweight: Hong Kong, Singapore, the Philippines and Indonesia.
Underweight: China, Japan, Australia and New Zealand.
Large-caps: Sun Hung Kai, Cheung Kong, Mitsubishi Estate, Hongkong Land,
Swire Pacific, CapitaMall Trust, KREIT Asia, COLI.
Small-caps: Charter Hall, ARA Asset Management, Alam Sutera,
Summarecon Agung and Kenedix Realty Investment.
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