Time to reload the Taiwan property sector. With a 10-20% correction in
valuations and higher new NAV estimates, we now feel that valuations of
most property names are attractive. The companies under our coverage are
trading at a discount to NAV. Market expectations have come off, which is
evidenced by the reduction of local institutional holdings (the lowest level
YTD). Given decent potential upside, we upgrade our ratings for Taiwan
Fertilizer, Huaku, Chong Hong, Hung Poo and Prince to OUTPERFORM,
and FET and Farglory from Underperform to NEUTRAL.
■ More solid macro and pricing outlook. With more data points coming out
to support a macro recovery in global markets, we believe the previous
concern of “how real (i.e., not just based on monetary liquidity) is the
property demand recovery” is fading away. Following a quiet 3Q09, we
expect real estate prices and transactions to revert to their strength in 4Q09,
as people start to anticipate a good year ahead. We believe the light supply
addition in 2009 also provides a solid base for the 2010 pricing outlook.
■ Top picks are Taiwan Fertilizer, followed by Huaku, Chong Hong and
Prince. 1H09 demand was driven mostly by high-end products, based on
strong monetary liquidity. We now believe the recovery is extending to the
middle to low-end segment, based on our recent checks with property sites.
We raise our 2010 property price increase assumption to 15% (from 10%) in
Taipei city. We see little risk to strong monetary liquidity (or low interest
rates) in the next six months. We expect a favourable capital rotation back
into the property sector once the sector enters the traditional high season in
4Q09. Our top picks are Taiwan Fertilizer, Huaku, Chong Hong and Prince.