Property Development & Inventory - CIMB Research 2016-06-16: A good month in May Jump in May sales

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

Property Devt & Invt - A good month in May Jump in May sales

Buying momentum for primary homes continued into May with 1,388 units transacted (1,056 without Executive Condos).
Excluding ECs, volume transactions were +41% and +66% mom and yoy, respectively. Unlike in Apr, a greater 55% of sales were in the city fringe areas, 39% in the suburbs and c6% in the central locations.
Notable projects include GEM Residences and Stars of Kovan, which made up 37% of total sales.

Whilst there were no new EC launches in May, absorption from ongoing projects accounted for 24% of total sales. The latest data has boosted 5MTD total homes sales to 3,536 units or 3,274 ex EC, which is 2.8% higher yoy.
Annualising the data, would bring us to close to our volume expectation for 8,000-9,000 units for 2016, and in tune with the long-term average. Hence, we leave this assumption unchanged.

Private home prices have corrected an average 9.1% from the 2013 peak, with city fringe prices retracing 9.8% and suburb prices correcting 8% over the same period. This is due to financing restrictions and higher transaction costs that were put in place, which heightened supply and increased vacancies.
With above-average new inventory coming onto the market over the next 2 years, we expect prices to continue to correct.
As at Mar16, there were 20,516 and 12,760 new homes to be completed between 2Q16-2017.

The near term build-up in unsold inventory facing Qualifying Certificate and Additional Buyers Stamp Duty penalties by developers are likely to intensify in 2017. Hence, we think selected projects may see a heavier drag on selling prices as developers start to clear inventory.
We are projecting residential prices to correct by 5-8% this year.

Developer stocks have retraced from recent highs and are trading at c41% discount to RNAV, with much of the negative sector newsflow in the price, in our view.
We think there is unlikely to be a policy reversal in the near term and concerns over Brexit may weigh on sentiment. Hence, we expect property stocks to remain rangebound in the short term.
Our top picks remain City Dev, UOL and Capitaland, given their diversified business models and attractive valuations.

ADD, TP S$4.07, S$2.96 close
We like CAPL for its ROE-boosting capital recycling activities. The stock trades at a steep 42% discount to RNAV

ADD, TP S$10.32, S$8.65 close
CIT’s valuations are attractive, in our view, at 0.87x P/BV and low net gearing of 0.26x. Potential near-term catalysts could materialise when its overseas contributions ramp up, which would remove concerns over execution ability.

ADD, TP S$8.26, S$5.46 close
UOL has high recurring income underpinned by rentals hotels and investment holdings. This provides a sturdy recurring income base. The stock now trades at a 34% discount to our target price.

LOCK Mun Yee CIMB Securities | Yeo Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-06-16

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