Developers with low reliance on development income and a high proportion of rental income will likely stand out, according to Bank of America Merill Lynch.
“We expect stocks with superior earnings visibility to outperform given the challenging macro environment in 2012,” it said.
Global Logistic Properties (GLP) will likely have superior earnings, given its stable Japanese assets, which account for 62 percent of its earnings, while 27 percent is driven by completed assets in China.
“Under today’s environment, we believe the secure lower growth profile offered by GLP will be favoured over highly volatile earnings from resi developers,” BofA said, noting that FX moves pose a meaningful risk to forecasts.
Considering the nature of industrial development (eight to 12 months turnaround), GLP can flexibly reduce capex commitments, should market conditions deteriorate.
“With the uncertainty regarding the LaSalle portfolio now removed, we expect positive share price momentum to continue.”
On the other hand, Fraser & Neave’s (FNN) secure earnings will be drawn from property development (33 percent), property investment (18 percent) and F&B (49 percent).
“Despite the cyclicality of the property business, FNN has managed to maintain stable EBIT margins. FNN operates primarily in the mass market segment in Singapore and launches projects within six to nine months of acquiring new sites,” it noted.
The report said FNN is expected to generate strong cash flow over the next two years, due to the highly cash generative nature of the F&B division and “progressive recognition of residential sales”. FNN is also able to recover development costs by selling completed assets to its listed Reits.
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