DBS Group Research . Equity 20 February 2009
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ed-SGC/LM / sa- GL
Murky skies
The unprecedented global financial turmoil has delivered
a severe blow to the local property market, which has
been spiralling downwards since 4Q08 and is unlikely to
bottom out before 1H10.
No sub-sector can escape the wrath of the global financial
crisis: Despite recent signs of stabilizing home prices, optimism
in the Residential sector is unwarranted because further
deterioration of economic fundamentals means a market
recovery is unlikely. We forecast residential prices to fall 20% in
2009. The Retail property market is bearing the brunt of weaker
domestic consumption and slowing tourist spending. Retail rents
are thus expected to decline by 10-20% this year. The Office
sector is hard hit. New office demand has virtually evaporated
amid massive corporate downsizing, and the supply overhang in
Kowloon East could exacerbate the office market downturn. We
project office rents to drop 40-50% before end-2010.
NEUTRAL on both property developers and investors
Current valuations of most of the property developers and
property investors under our coverage have fallen to levels similar
to the previous market trough. However, we expect asset values
to shrink further and see no positive catalyst to support sector rerating.
This justifies our Neutral rating for both sectors.
Be patient and prudent in stock selection: Property investors
generally offer no upside. Among property developers, SHKP
and Hang Lung Properties are fairly priced. A better entry point
would be 10-15% below their current levels. We also
recommend HOLD on New World Development and Tai Cheung
in the absence of any catalyst that would narrow their steep
NAV discount. Sino Land and Henderson Land Development
might offer some trading opportunities following the recent
share sell-down, while Kerry Properties could be a good long
term investment due to its proven development expertise and
well-located land bank. We also recommend The Link REIT and
Fortune REIT as safe bets in the current shaky market because of
their resilient income.

Table of Contents
Investment summary 3
Residential market 6
Office market 18
Retail market 23
Property developers 26
Property investors 34
REITs 40
Stock Profiles 47
Cheung Kong 48
Hang Lung Properties 50
Henders on Land 52
Kerry Properties 54
New World Development 56
Sino Land 58
Sun Hung Kai Properties 60
Tai Cheung 62
Great Eagle 64
Hongkong Land 66
Hys an Development 68
Swire Pacific 'A' 70
Wharf Holdings 72
Champion REIT 74
Fortune REIT 76
The Link REIT 78
Prosperity REIT 80
Note:
Prices used

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