A higher population parameter of 7m is expected.
According to DBS, the government has indicated that it will be releasing a White Paper to look at issues and impact of rising population. This is expected sometime in Jan 2013.
Here's more from DBS:
We expect a higher population parameter of 7m to be used, from 6.5m previously. There will likely to be no mention of timeframe, but in our base scenario, we are projecting it to reach 7m by 2030, implying average growth of 1.5% per annum.
Beneficiaries. We continue to see long term benefits accruing to domestic driven sectors, particularly public transport, property and healthcare. There will be a need for infrastructure to cater to a larger population, so we expect the construction sector to benefit as well. Our views are summarised below:
1. Land Transport. We project ridership to remain robust, up to 1.4x higher than it is today to a daily ridership of 13.8m, from 5.8m in 2011. This assumes 60% train rides, and implies c.7% ridership CAGR till 2030. This is possible with LTA’s latest announcement to double the rail network to 360km by 2030.
Prefer ComfortDelGro over SMRT. While both public transport operators will be beneficiaries, our preferred pick is ComfortDelGro. We like it for its stable growth profile, geographical exposure, and PE valuation that is still at its historical average (15x) vs SMRT’s 18x.
For SMRT, we are still concerned with near term cost challenges and see potential downside if DPS is cut to fund capex investment plans.
2. Construction. We expect to see a step up in infrastructure spend to cater for a larger population following comments from the government that population growth has outpaced infrastructure capacities in recent years.
In fact, LTA has just announced plans to double the rail network to 360km by 2030, from 178km today. Our back-of-the envelope calculation indicates this would equate to an investment of over S$100bn, including the S$60bn previously announced.
Prefer resource providers to pure contractors. Our picks are Tat Hong, Pan United and Sin Heng. Near term, we see continued pressure on contractors’ margins from rising material and resource costs, and squeeze on foreign labour levy as Singapore embarks on its drive towards higher productivity.
3. Property. A larger population would no doubt create demand for more homes. In our base case scenario, we estimate there is a need for 367,000 homes, or a 31% increase from 1.2m in 2012 (public and private).
This translates into an annual average of 20,000 to 21,000 units per year. We see a higher average of 34,317 units completed per year (2011 – 2016F), but based on our analysis, this seems to be a move to fill the shortfall in recent years (2001 – 2010). Notwithstanding a long term positive view, we are cognizant of the recent property cooling measures and are selective in our picks.
We like Wing Tai as a purer residential developer in Singapore and for its attractive valuation. It is trading at 37% discount to its NAV of $2.91 (0.63x P/NAV) and 45% discount to our RNAV of S$3.33. We also like Capitaland as a diversified player, exposure to improving sentiment in the China residential sector, and improved performance of CapitaMall Asia. We like Mapletree Commercial Trust as it stands out as a key beneficiary of the growth potential in the “Southern corridor” in Singapore.
4. Healthcare. We expect the White Paper to focus substantially on the falling birth rates and aging population. Healthcare providers will be long term beneficiaries to this secular trend, but valuations seem stretched. Raffles Medical is trading at 25x FY13F PE while IHH is trading at 37x.
A potential beneficiary of policies to encourage procreation to address the falling birth rates would be Cordlife Group, a stem cord blood bank. With additional incentives to boost birth rates and create a more educated population, Cordlife can capitalise on this trend to grow.
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