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

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

  • Upsurge in May sales, led by 2 new projects.
  • Our volume and property price assumptions are unchanged.
  • Maintain Overweight stance; top picks – City Dev, UOL and Capitaland.

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.

On track to reach 8,000-9,000 units this year

  • 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.

Prices continue to be under pressure

  • 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.

Headwinds from penalties

  • 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.

Selective stock picking

  • 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.

Highlighted companies


  • 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

City Developments

  • 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.

UOL Group

  • 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.

Peer Comparisons

CIMB Research - Property & Inventory Peer Comparison 2016-06-16

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