Property Development & Inventory - CIMB Research 2016-04-18: Rebound in Mar sales

Property Development & Inventory - CIMB Research 2016-04-18: Rebound in Mar sales CITY DEVELOPMENTS LIMITED C09.SI  CAPITALAND LIMITED C31.SI  UOL GROUP LIMITED U14.SI 

Property Development & Inventory - Rebound in Mar sales 

  • Rebound in Mar primary homes sales to the highest since mid-2015, points to some volume stabilisation in the market. 
  • But homes prices likely to continue contracting on high incoming supply and rising drag from QC and ABSD penalties. 
  • Still selective stock picking: in our order of top picks, City Dev, UOL and Capitaland. 

A rebound… 

  • Mar monthly private home sales rebounded to 1,328 units (834 ex-Executive Condos). The latter is 37% higher yoy and up 175% mom. 
  • Notable projects seeing buying activity include Capitaland’s Cairnhill Nine (177 units sold at S$2,441psf) as well as The Wisteria (125 units sold at S$1,112psf). 
  • Other projects with sales movement include Botanique at Bartley, Kingsford Hillview Peak and The Poiz Residences. 

….but not broad-based 

  • Although take-up rate still exceed new launches by 1.2x, activity still does not show a broad-based recovery. 
  • The latest figures translate to 1Q primary home sales (excluding ECs) sales of 1,470 units, 6.6% higher than a year ago, indicating some stabilisation in the market. 
  • The bulk of sales are still concentrated in the Outside Central Region. 

Maintain our expectation for 8,000-9000 sales volume in 2016 

  • We maintain our projections for 8,000-9,000 units of primary homes sales for 2016, back in tandem with the long term average. However, we anticipate prices to continue retracing by 5-8% on the back of peaking housing completions. 
  • There are 26,467 and 17,234 private homes and ECs scheduled to be completed in 2016-17. This will drag on occupancy levels and consequently residential prices. 

Drag on prices from rising penalties 

  • The slowing residential market and rising unsold inventory have raised concerns over the impact of Qualifying Certificate and Additional Buyers’ Stamp Duty penalties for developers with unsold inventories beyond a certain time limit. 
  • These penalties are set to gather momentum from 2017 onwards. Hence, we anticipate that selected projects may see a higher drag on prices as developers start to clear these inventories. 

Stay Overweight with selective stock picking 

  • Developer stocks have rebounded from the recent low and are trading at 40% discount to RNAV, at the -1 s.d. historical discount to mean, with much of the negative newsflow in the stock price. 
  • With no policy reversal in sight, we think property stocks would stay range bound in the near term. We prefer stocks with strong earnings visibility and attractive valuations. 
  • Our top picks are City Dev, UOL, Capitaland. 

Highlighted companies 

CapitaLand ADD, TP S$4.05, S$3.13 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$8.70 close 

  • CIT’s valuations are attractive, at 0.87x P/BV and a 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$5.94 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/ 2016-04-18
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