Property Development & Inventory - CIMB Research 2016-03-15: Slow to take off

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CITY DEVELOPMENTS LIMITED C09.SI  CAPITALAND LIMITED C31.SI  UOL GROUP LIMITED U14.SI 

Property Development & Inventory - Slow to take off 

• A slow Feb for home sales, with few new project releases and the CNY holiday season. 
• We think Mar could have a better showing and maintain our full-year projection of 8,000-9,000 new units 
• We are Overweight on the property sector, with a stock picking strategy. We prefer City Dev, UOL and Capitaland. 

Still lackluster in Feb… 

• Feb primary home sales came in at 430 units, or 301 units excluding Executive Condominium sales. The latter is 5% lower than the volume transacted in Jan this year and 23% below the same period in 2015. 
• Notable projects changing hands include UOL’s Principal Gardens, Poiz Residences, The Panorama, and The Terrace and The Vales ECs, although volume per project remained < 20 units for the month. 

…due to low launches and festive period 

• The response is partly a function of the low level of launches, with only 209 new units released (take up rate ~1.44x) and the CNY holidays in Feb. 2MTD sales total 909 units (624 without ECs), trailing below last year by 11%/19%, respectively. 

Mar numbers likely a better showing 

• We maintain our projections for 8,000-9,000 units of primary sales for this year. 
• Recent launch such as Capitaland’s Cairnhill Nine has garnered strong response with 134 units sold during initial launch while The Wisteria saw 116 units changing hands. Sim Lian’s 534-unit Wandervale EC is also 1.47x over-subscribed, ahead of its balloting and booking process. 

Digesting ongoing supply 

• Meanwhile, we expect private residential prices to continue slipping by 5-8% in 2016 on the back of peaking housing completions. 
• There are 26,467 and 17,234 private and EC units to be completed in 2016 and 2017, respectively. This will drag on occupancy and rents, in our view and, consequently, residential prices. 

Selective stock picking 

• Developer stocks are trading at an average 43% discount to RNAV, below the -1s.d. historical discount to mean. 
• We believe much of this moderated outlook is factored into stock prices. With no policy reversal anticipated in the near term, we think developers stocks are likely to remain range bound. 
• Our strategy is to prefer stocks with strong earnings visibility and attractive valuations, and our top picks are City Dev, UOL and Capitaland.

Highlighted companies 

CapitaLand ADD, TP S$4.05, S$3.14 close 

• We like CAPL for its ROE-boosting capital recycling activities. 
• The stock trades at a steep 38% discount to RNAV. 

City Developments ADD, TP S$10.32, S$7.58 close 

• CIT’s valuations are attractive, in our view, at 0.76x P/BV and low net gearing of 0.28x. 
• Potential near-term catalyst could materialise when its overseas contributions ramp up, which would remove concerns over execution ability. 

UOL Group ADD, TP S$8.26, S$5.90 close 

• UOL has high recurring income, underpinned by rentals, hotels and investment income. This provides a sturdy recurring income base. 
• The stock now trades at a 28% discount to our target price

LOCK Mun Yee CIMB Securities | Yeo Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-03-15

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