4 reasons why UOL may outshine CDL next year

UOL is estimated to generate 28% total return versus CDL's 7%.

While CDL could generate positive total return (+7% upside) in the year ahead on undemanding valuations, Maybank KimEng expects UOL (+28% upside) to outperform and advocate a switch from the former given its outperformance in 2016.

The research house cites four reasons as follows:

• No sharp rebound in home sales. We believe Singapore will not relax property cooling measures anytime soon and expect home sales volume to stay weak. While we do not expect a sharp fall in home prices to hit developer’s balance sheets, slow sales will continue to weigh on profit outlook. Furthermore, developers will continue to be subjected to potential penalties from project deadlines. As CDL’s recent deal on PPS 3 showed, developers may have to compromise on profitability when offloading projects facing deadlines. CDL has a larger residential exposure than UOL.
• Defensive positioning favours Developers with larger recurring income base. With heightened risk aversion in the market, we believe property developers with a larger recurring income base will outperform. UOL has a larger base of recurring income than CDL.
• Resilient office prices. Strong institutional interest in office properties and high land cost suggests that office prices will stay resilient despite a weak rental outlook. UOL has a larger office exposure than CDL. 
• Larger discount to underlying assets. We see more downside protection for UOL as it trades at a larger 42% discount to the market value of its underlying assets than CDL’s 20%.