Property Development - CIMB Research 2015-10-15: Sluggish Sep sales

CITY DEVELOPMENTS LIMITED C09.SI CAPITALAND LIMITED C31.SI

Property Development - Sluggish Sep sales

Sep primary home sales continued to trend down mom and yoy. 9M15 total transactions were held up by higher EC sales, ex-EC volume continued to decline
Upcoming new launch could boost Oct sales. Overall, we expect 2015 sales to be lower yoy, as developers deplete landbank and given the tighter financing limits.
Advise selective stock picking. Capitaland and City Dev remain our top picks.

Total Sep primary home sales came in at 629 units, down 35% mom and 11% yoy. Excluding executive condos (ECs), Sep sales stood at 341 units, 34% and 47% lower mom and yoy, respectively. The latest sales boosted 9M15 total primary volume to 8,048 units or 6,024 units ex-ECS. While ex-EC sales were c.2% lower yoy, total transactions were 22% higher yoy, with the slack more than taken up by increased EC sales.

Weaker Sep sales were due to lack of sizeable new launches and modest buying appetite. The bulk of sales in Sep continued to be dominated by Outside Central Region (OCR) sales, which made up 74% of ex-EC transactions, while sales in the Core Central Region (CCR) and Rest of Central Region (RCR) accounted for 6% and 20%, respectively. Most popular projects changing hands were Chip Eng Seng’s High Park Residences, UOL’s Botanique at Bartley and Keppel Land’s Highline Residences.

We expect transaction volumes to pick up in Oct, with the upcoming launch of UOL’s 663-unit Principal Garden at Prince Charles Crescent. Overall, we project that transaction volumes in 2015 will be lower than in 2014 as developers deplete their land inventory and demand remains sluggish, with higher transaction costs and financing limits still in place.

We maintain our expectation for prices to continue to slide by 10% in 2015-16, dragged by completions of large new inventory in the OCR and declining rental market as vacancies rise. Around 23,000 and 26,000 ECs and private homes are scheduled to be completed in 2015 and 2016, respectively. Apart from falling rents, rising interest rates have narrowed rental yield spreads.

Developer stocks are now trading at 40% below RNAV after the recent share price recovery. We believe that much of the subdued outlook has been priced in and expect developer stocks to remain range bound in the near term. We continue to like Capitaland for its diversified business model and ROE-boosting capital recycling activities. We also like City Dev for its attractive valuations. We remain Overweight on the sector.

We like CAPL for its diversified business model and ROE boosting capital recycling activities. The stock is trading at a steep 40% discount to its RNAV.

CIT’s valuations are attractive, trading at a 42% discount to RNAV and at 0.9x P/BV. Launch of The Criterion EC and planned offering of the Gramercy Park projects could be catalysts.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-10-15

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