Property Development & Inventory - CIMB Research 2016-06-08: Keeping a stable supply

Property Development & Inventory - CIMB Research 2016-06-08: Keeping a stable supply CITY DEVELOPMENTS LIMITED C09.SI  CAPITALAND LIMITED C31.SI  UOL GROUP LIMITED U14.SI 

Property Devt & Invt - Keeping a stable supply 

  • Maintain a stable 2H16 supply of new land.
  • Balancing between high near term completions and sufficient future inventory.
  • Maintain sector Overweight. Top picks are City Dev, Capitaland and UOL.

Maintaining a stable new land supply

  • The Ministry of National Development has maintained a relatively stable supply of residential and commercial space for its 2H16 land sale programme, releasing 15 sites with a total of 7,545 residential units and 277,080 sq m of commercial space vs. 7,415 units and 272,580 sq m in 1H16. 
  • There was also lower supply of Executive Condominium sites with only one land parcel earmarked for this product.

Well distributed between city fringes and suburban areas

  • There is a good distribution of development sites in the Rest of Central Region and Outside Central Region to target first timers and upgraders such as Fernvale Road in Sengkang and West Coast Vale in Clementi. 
  • In addition, a mixed development site at Upper Serangoon is offered to cater to future residents at upcoming Bidadari Estate.

Balance between high completions and sufficient future inventory

  • The 2H16 confirmed list supply of 2,170 residential units is slightly higher than the 1,560 in 1H16. However, this is still much lower than supply over the past 5-6 years. 
  • The latest schedule indicates that the government is mindful that near term high number of completions would continue to drag on prices while maintaining a sufficient stream of future inventory.

Maintain 5-8% price decline for 2016

  • Hence, we retain our expectation for private home prices to correct by 5-8% in 2016 (vs. -3.7% in 2015). 
  • With an elevated stock of unsold inventory and looming Qualifying Certificate and Additional Buyers Stamp Duty penalties on developers, expected to intensify from 2017, we think selected projects will see a heavier drag on price as developers start to clear inventory.

City Dev, Capitaland and UOL remain our top picks

  • We think most of the negative news appear to be priced into the share prices. The sector is now trading at 41% discount to RNAV or at -1s.d. to long term average mean and 0.69x P/BV. 
  • We think there is unlikely to be a policy reversal in the near term and expect property stocks to remain range bound in the near term. 
  • Our top picks remain City Dev, UOL and CAPL.

Highlighted companies


  • ADD, TP S$4.07, S$3.08 close
  • We like CAPL for its ROE-boosting capital recycling activities. The stock trades at a steep 39% discount to RNAV.

City Developments

  • ADD, TP S$10.32, S$9.00 close
  • CIT’s valuations are attractive, at 0.9x P/BV and a low net gearing of 0.26x. Near-term catalyst could emerge when its overseas contributions ramp up and remove concerns over execution ability and potential asset recycling activities.

UOL Group

  • ADD, TP S$8.26, S$5.62 close
  • UOL has high recurring income, underpinned by rentals, hotels and investment income. This provides a sturdy recurrent 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/ 2016-06-08
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