Property Developments & Inventories - CIMB Research 2017-10-02: Uptick In Private Residential Prices

Singapore Property Market Property Developer Stocks CAPITALAND LIMITED C31.SI UOL GROUP LIMITED U14.SI CITY DEVELOPMENTS LIMITED C09.SI

Property Developments & Inventories - Uptick In Private Residential Prices

First private residential price uptick in over 3 years, supported by improved volume.
Declining completions over next 2-3 years to support a sustained price recovery.
Stay Overweight; top picks – UOL, City Dev, Capitaland, Wing Tai.

The URA property price index (PPI) showed its first upward inflection in 3Q17, with a 0.5% qoq improvement. The reversal came after a 15-quarter downturn since 4Q13.
Private residential prices are now back to around the 4Q16 level. The price uptick reaffirms our view that the private residential market is on the mend, on the back of higher yoy buying demand.
Prices in the Core Central Region (CCR) and Outside Central Region (OCR) were also 0.2% and 0.7% qoq higher, respectively, while those in the Rest of Central Region (RCR) remained stable qoq.
See URA media report.

To recap, for the first 8 months, total private home demand amounted to 12,322 of which 8,919 were private housing and the rest were executive condominiums (EC). These represent an increase of 46.2% and 66% yoy, respectively, over the previous corresponding period.
Ex-EC sales made up 72% of the higher end of our 2017 projected volume transaction volume of 10,000 units, thanks to the improved market sentiment and outlook.

Against the more positive backdrop, developers have been tapping both the government land sales as well as the en-bloc markets to replenish their inventory.
More importantly, with rising land costs, replacement costs have risen and we think some growth expectation in forward pricing has been factored into end product prices.
With completions expected to decline over the next 2-3 years, we believe the nascent price recovery could be sustained.

Property stocks are trading at a 29% discount to RNAV, midway between average and -1 s.d. discount to mean. While property stocks have outperformed YTD, we believe the sector would continue to perform given the evidence of volume and price recovery.
Hence, we maintain our sector Overweight call and continue to favour UOL, City Dev, Capitaland and Wing Tai as our top picks.
Potential catalysts are good response to new launches and increased land restocking activities that could boost RNAV and prices.
Key risks include faster-than-expected rise in mortgage rates or increased unemployment, which could derail demand.

ADD, Target Price S$4.21.
We like CapitaLand for its ROE-boosting capital recycling activities. The stock is trading at a 32% discount to RNAV.

ADD, Target Price S$12.54.
Singapore and overseas residential earnings continue to underpin near-term growth. City Developements's low gearing and resumption of landbank restocking activity should underpin RNAV expansion, in our view.

ADD, Target Price S$9.03.
UOL has a high recurring income base, underpinned by rentals, hotel operations and investment holdings. It has additional 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/ 2017-10-02

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 4.210 Same 4.210

ADD Maintain ADD 9.030 Same 9.030

ADD Maintain ADD 12.540 Same 12.540