2 in-line with expectations, 1 below. Most property developers reportedweak sets of results for 3Q 2008, largely attributable to weaker residentialproperty sales. This was inline with the data released URA, which showedthat transaction volume for private properties fell by 61% YoY to 3,994 unitsin 3Q08. Among the developers that we cover, 2 of them - UOL Group andSoilbuild Group turned in robust sets of results that were within ourexpectations. CapitaLand disappointed as profitability was substantiallyboosted by disposal gains and AustraLand turned in weaker-than-expectedprofits.

Developers' balance sheets improved... Among the larger cap developersthat we track, most of them reported stronger balance sheets at the end of3Q08. On average, net debt-equity ratio had come down from 0.52x in2Q08 to 0.49x in 3Q08 and the improvement was generally attributable tostronger equity base, paring down of borrowings and increase in cash holdingfrom divestments.

…But earnings downside risks heightened. We see downside risk todevelopers' earnings for 4Q08. Sentiment in the property market continuesto deteriorate, as evident in the sharp plunge in transaction volume for non-landed properties in October and property sales are likely to be weak in4Q08. Most developers had also guided for weaker outlook ahead in recentannouncements. Construction progress of development projects could alsobe slower in 4Q08 as greater disruptions caused by the wet weatherconditions towards the year end could translate to slower revenuerecognition. Also, developers' earnings could be affected by potential write-downs in valuation of investment properties at the end of the year.

Market is over-pessimistic on developers. Driven by over-pessimism inthe general stock market and negative news flow, share prices of propertydevelopers have been badly battered, with many of them trading at or belowtheir previous trough price-book valuations. On a RNAV basis, which wehad factored in write-downs in asset value, the developers are still tradingat discounts of 44% to 63% to their RNAVs. Valuations are attractive atcurrent level. Among the developers under coverage, we have BUYrecommendations for UOL Group (FV: S$2.88), Keppel Land (FV: S$2.43)and Soilbuild Group (FV: S$0.93). We have a HOLD recommendation forCapitaLand (FV: S$3.28).