Property Development & Inventory - CIMB Research 2016-09-15: Slower launches and sales in Aug

Property Development & Inventory - CIMB Research 2016-09-15: Slower launches and sales in Aug CITY DEVELOPMENTS LIMITED C09.SI  CAPITALAND LIMITED C31.SI  UOL GROUP LIMITED U14.SI 

Property Devt & Invt - Slower launches and sales in Aug

  • Weaker Aug sales on slower new launches.
  • Transaction volumes stabilising, but looming supply and rising vacancy continue to drag on outlook.
  • Concerns factored into stock prices, maintain sector Overweight.

Slower Hungry Ghost month sales

  • Aug primary home sales came in at 805 units with Executive Condos making up 41% of total transactions. Sans ECs, volume sales of 473 units were lower by 57% mom, and 8% yoy. Most activity stayed in the Outside Central Region accounting for 60% of private home sales while high end projects saw 49 units changing hands or c.10% share.
  • Most popular projects include MCL Land’s Lake Grande, IOI Properties’ The Trilinq and Keppel Land’s The Glades.

YTD sales in line with post tightening 2014-15 levels

  • YTD a total of 8,418 units were sold, of which 64% (5,374) are private homes. This is 5% lower than 2015 figures and 2% below 2014 levels, indicating that the physical market has likely reached a new equilibrium post credit and policy tightening. 
  • Our target volume of 8,000-9,000 units is maintained.

Looming supply continues to cloud outlook

  • But with high incoming supply of 10,262 units in 2H16 and 14,578 units in 2017, rising vacancy and dwindling rental market, we expect private home prices to continue declining and keep our projection for a mid-single digit dip in 2016. 45% of these completions are in the suburban locations and this will continue to drag on price outlook in these areas.

Much is priced in, maintain Overweight

  • Developer stocks are trading at a 42% discount to the sector RNAV, at the -1s.d. to mean discount and we think that much of the negative newsflow is in the price. In the absence of any immediate policy relaxation catalyst, we think the sector will still trade range-bound. 
  • We stay sector Overweight with our top picks of UOL, Capitaland and City Dev.
  • Downside risk to our call is a faster than expected upturn in the interest rate cycle which would translate to higher mortgage payments and drag on affordability.

Highlighted companies 

CapitaLand ADD, TP S$4.17, S$3.10 close 

  • We like CAPL for its ROE-boosting capital recycling activities. The stock is trading at a 40% discount to RNAV.

City Developments ADD, TP S$10.38, S$8.82 close 

  • Overseas contributions from China and UK are expected to ramp up in 2H16 and spur earnings growth. In addition, CIT’s active capital recycling and low gearing of 0.27x would enable the group to reinvest in new projects.

UOL Group ADD, TP S$7.96, S$5.55 close 

  • UOL has high recurring income underpinned by rentals, hotels and investment holdings, providing the group with a stable income base.
  • The stock is trading at a 44% discount to RNAV.

Peer Comparisons

CIMB Research - Property & Inventory Peer Comparison 2016-09-15

LOCK Mun Yee CIMB Securities | Yeo Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-09-15
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 10.38 Same 10.38
ADD Maintain ADD 4.17 Same 4.17
ADD Maintain ADD 7.96 Same 7.96