After market close on Friday in Singapore, Bukit Sembawang (BS) announced in an exchange filing that “based on information currently available, the Group (BS) is expected to report a loss for the financial year ended 31 March, 2009, primarily due to the recognition of an allowance for foreseeable losses for a development project as a result of the weakening of the property market.”

As a recap, despite our projection for mass-market private home prices to fall 32.1% and luxury home prices to fall 43.8% over the cycle, we do not reflect potential asset revaluation deficits in earnings estimates for Singapore real estate stocks under coverage, preferring to focus on projecting core earnings. We are cutting our FY09F numbers to reflect the loss but judge the company’s move to write down assets to be in-line with our expectation for lower asset values.

As such, we project that a provision of S$51mn (20% of Fairway’s book value of S$255.1mn) will be made this year, which will reverse our previous forecast for EPS of 16.7Scts to a loss of 21.1Scts per share in FY09F. We assume for now no dividend will be paid for FY09F (vs 4Scts/share previously), as a result of the loss. There are minor changes to our FY10-11F EPS forecasts, arising from changes in cash balances.

Note that the implied land value for Fairways of S$628psfppr (20% lower than the S$785psfppr that BS paid for) is different from the estimate of S$270psfppr that we use in our liquidation NAV calculation (more details in next section), principally because the former is based on perceived transactional evidence, which may not reflect the realistic clearing price under current market conditions.

As mentioned before, while provisions for foreseeable losses for development projects are not reflected in our earnings forecasts, they are in-line with our expectation for asset values to be lower. This is reflected in our liquidation NAV estimate, which forms the basis of our price targets for highly geared smaller developers under coverage such as BS. There is no change to our liquidation NAV estimate and price target of S$2.76, following the profit warning. Maintain NEUTRAL.