Singapore Property Devt & Invt - CIMB Research 2017-09-04: Upward Revision In DC Charges

Singapore Property Stocks UOL GROUP LIMITED U14.SI CITY DEVELOPMENTS LIMITED C09.SI CAPITALAND LIMITED C31.SI WING TAI HLDGS LTD W05.SI

Property Devt & Invt - Upward Revision In DC Charges

The higher development charges (DC) for Sep 17-Feb 18 imply a hike in total land cost.
Additional supply from en-bloc redevelopments to be felt in the medium term.
Maintain Overweight on the sector; our top picks: UOL, City Dev, Capitaland, Wing Tai.

The latest development charges (DC) for Sep 17-Feb 18 show unchanged or higher DC rates for all property sectors.
Whilst hotel and industrial rates remained unchanged from 6 months ago, non-landed residential rates jumped by a sizable average 13.8% over the same period, with the highest rise of 29% applied to the Tampines Rd, Hougang, Punggol and Sengkang areas, as a result of strong pricing during the recent en-bloc transactions.

These latest hikes would likely increase the overall land cost for developers. While the hike was expected, we believe the full quantum of some of the increases may not have been fully factored in at this point.
Amongst the recent concluded transactions, we believe Rio Casa, Eunosville, Serangoon Ville, and Tampines Court HUDC sites have yet to lock in their charges. Going forward, we think a higher land cost could mean a more realistic en-bloc tender price.

In terms of supply, the 11 residential en-bloc transactions should displace 1,998 existing households and can be redeveloped into potentially 8,500 new apartments over the next few years.
With new private housing completions declining to 8,417/8,465/5,939 units in 2018/2019/2020, we believe the market could likely absorb the additional inventory.

Among the listed developers with en-bloc landbank, the increase in DC are unlikely to affect UOL/ UIC’s Raintree Gardens as the charges have already been locked in, having been acquired in 4Q16. Total land cost works c.S$797psf of GFA. Based on the selling prices of surrounding projects of c.S$1,400psf, we expect UOL/ UIC to generate a decent PBT margin from this project.

Property stocks are trading at a c.30% discount to RNAV. While property stocks have outperformed YTD, we believe the sector would continue to perform well given the evidence of volume and sentiment recovery. Hence, we maintain our Overweight stance and continue to favour UOL, City Dev, Capitaland and Wing Tai as our top picks.
Catalysts such as land restocking would continue to boost RNAV and share prices.
Key risks include faster-than-expected rise in mortgage rates or slower-than-projected economic growth.

We like CAPL for its ROE-boosting capital recycling activities. The stock is trading at a 28% discount to RNAV.

Singapore and overseas residential earnings continue to underpin near-term growth. CIT’s low gearing of 0.16x and resumption of landbank restocking activity should underpin its RNAV expansion, in our view.

UOL has a high recurring income base, supported by rentals, hotel operations and investment holdings. It has good office exposure through its associate UIC. The stock is trading at a 28% discount to RNAV.

LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-09-04

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