Property Development & Inventory - CIMB Research 2016-05-16: Supported by new launches

Property Development & Inventory - CIMB Research 2016-05-16: Supported by new launches CITY DEVELOPMENTS LIMITED C09.SI  CAPITALAND LIMITED C31.SI  UOL GROUP LIMITED U14.SI 

Property Devt & Invt - Supported by new launches

  • Apr home sales of 745 units lower yoy and qoq, half of transactions suburban.
  • Maintain our expectation for 8,000-9,000 volume sales this year and prices to retrace 5-8%.
  • At a 42% sector discount to RNAV, share prices have factored in the slower outlook. Maintain Overweight; our top picks – City Dev, UOL, Capitaland.

April home sales held up by new launches

  • Apr monthly home sales saw 1,291 units changing hands (ex-ECs – 745) on 2,160 units (900 units ex-Ecs) launched. This is 36% below Apr 15 and 12% less than Mar 16’s volumes.
  • This latest sales performance translates into a take-up rate of 60% (ex-ECs 83%). The lower take-up rate reflects slower demand for executive condos such as Parc Life and The Visionaire, which saw 8% and 24% transacted. Ex-ECs, projects with more sales include Sturdee Residences, Botanique at Bartley, The Poiz Residences and Cairnhill Nine.

Transactions still focused on the fringe areas

  • Suburban units made up half of sales while centrally located properties accounted for c.9% of take-up. While we see some signs of stabilisation of volume in the market, it does not indicate a broad-based recovery. 
  • 4MTD volume transactions total 2,215 units, still below the last corresponding period’s 2,500 plus units.

Leaving our 8000-9000 sales projections unchanged

  • We maintain our expectations for 8,000-9,000 units of primary home sales for 2016, in tandem with the long-term average. However, we see prices continuing the declining trend and expect a 5-8% correction this year, particularly outside the central areas, on the back of large housing completions. 
  • As at end-Mar 16, there are 20,516 and 12,760 new housing units to be completed between 2Q16 to end-17. Of this, 56% and 48% are located in the suburbs, respectively.

Headwinds from penalties

  • In addition, the slowing residential market and build-up in unsold inventory (beyond a certain time limit) have raised concerns over the Qualifying Certificate and Additional Buyers’ Stamp Duty penalties on developers. These penalties are set to intensify from 2017. Hence, we think that selected projects may see a heavier drag on price as developers start to clear inventory.

Selective stock picking

  • Developer stocks have retraced from recent highs and are trading at a c.42% discount to RNAV, with much of the negative newsflow in the price. There is unlikely to be a policy reversal in the near term. As such, we think property stocks could stay range-bound in the near term
  • We prefer developers with a diversified business model and attractive valuations. 
  • Our top picks are City Dev, UOL and Capitaland.

Highlighted companies


  • ADD, TP S$4.07, S$2.99 close
  • We like CAPL for its ROE-boosting capital recycling activities. The stock trades at a steep 41% discount to RNAV.

City Developments

  • ADD, TP S$10.32, S$8.00 close
  • CIT’s valuations are attractive, at 0.82x P/BV and a low net gearing of 0.26x. 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$5.61 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 32% discount to our target price.

Peer Comparisons

LOCK Mun Yee CIMB Securities | Yeo Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-05-16
CIMB Securities SGX Stock Analyst Report BUY Maintain BUY 10.32 Same 10.32
BUY Maintain BUY 4.07 Same 4.07
BUY Maintain BUY 8.26 Same 8.26