Property Development & Inventory - CIMB Research 2016-10-18: Relatively stable Sep sales

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

Property Development & Inventory - Relatively stable Sep sales

Sep monthly home sales were 8% higher mom at 509 units, as market volume is stabilising.
High volume of incoming completions and increased vacancy rates will drag on price outlook, in our view.
Maintain Overweight. Our top picks are UOL, Capitaland and City Dev.

Monthly primary home sales, including ECs, for Sep 16 came in at 769 units.
Stripping out executive condo sales, transaction volume was 509 units, 8% higher mom and a 49% improvement from a year ago. Take-up rate was 1.06x new launch units due to lower number of new launches.
More popular projects were The Trlilinq, Lake Grande and The Glades.
Suburban projects continued to garner the most interest, accounting for 58% of monthly sales, followed by city fringe projects (28%).

This brings 9M16 sales volume to 9,199 units (5,883 ex-executive condos), which is relatively stable compared to the 8,048 units (6,024 ex-executive condos) in 9M15. At this level, we think that the physical market may have reached post-credit and policy tightening volume equilibrium.

Nonetheless, we expect prices to continue to slide down due to high incoming supply of 10,262 units in 2H16F and 14,578 units in 2017F, which will drag on occupancy rate.
The 3Q16 URA price index flash estimate showed that private home prices retraced by a steeper 1.5% qoq in 3Q16 versus the 0.4% decline in 2Q16. In addition, the rental market remains sluggish, putting pressure on investment demand.

Developer stocks are trading at 42% discount to sector RNAV, at 1 s.d. below mean, and we think much of the negative newsflow is in the price. In the absence of any immediate policy relaxation catalysts, we think that the sector will trade range-bound.
We stay Overweight, with our top picks of UOL, Capitaland and City Dev.
Downside risks include interest rate upcycle, which would erode affordability, and rising unemployment rate.

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

Overseas contributions from China and the UK are expected to ramp up in 2H16F 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 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 42% discount to RNAV.

LOCK Mun Yee CIMB Research | Yeo Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-10-18

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