Property Development & Inventory - CGS-CIMB Research 2018-06-27: Steady Private Housing Supply In 2H

Singapore Property Developers Property Market Outlook CITY DEVELOPMENTS LIMITED SGX:C09 UOL GROUP LIMITED SGX:U14

Property Development & Inventory - Steady Private Housing Supply In 2H

2H18 government land sale programme (GLS) holds residential supply steady, with new sites for commercial and hotel developments.
We expect private home prices to improve and are still positive on hospitality sector.
Maintain sector Overweight. Sector top picks are UOL and City Developments.

The government has released land sites for a total of 8,040 residential units (2,775 confirmed, 5,335 reserve), 930 hotel rooms and 124,200 sq m of commercial space under its latest 2H18 land sale programme (GLS).

In all, seven sites were carried over from the 1H18 programme and seven new parcels were introduced.

The private residential component was little changed from 1H18. However, the commercial space component was increased, largely due to the introduction of a mixed use site in Pasir Ris. There was an allocation for 930 new hotel rooms, the first since 2013.
Notable land parcels include a mixed use retail/residential site with integrated community and interchange facilities in Pasir Ris, a mixed use parcel at Marina View that can house 905 residential units and 540 hotel rooms with a small component of retail facilities. There is also one executive condominium site in Tampines Ave 10 with potential for up to 695 units.

With the latest planned supply, there is a potential supply of 20,000 new units from the GLS and en bloc land parcels in the pipeline, in addition to the 24,000 unsold units from projects with planning approval.
As at 1Q18, an estimated 9,848 and 9,446 private residential homes are expected to be completed for 9M18 and 2019. Hence, we expect private home prices to continue their upward trajectory, albeit at a slower pace, for the remainder of this year.

Inbound tourists into Singapore were robust with 6.18m arrivals for 4M18, up 6.7% y-o-y. Hotel occupancy average was 86.2%, +1.4% pts y-o-y while Revpar rose 4.4% y-o-y, over the same period.
Meanwhile, the pace of new incoming supply of hotel rooms is expected to increase by a modest 1-2% annually over the next two years. The new hotel land under the 2H18 GLS, when acquired, is expected to add to supply only in the longer run. Hence, we retain our positive view on the Singapore hospitality sector.

We continue to remain positive on property developers. Valuations are attractive, at 44% discount to RNAV and 0.71x P/BV, which is back to the -1 s.d. levels. We continue to prefer the big-cap names such as UOL and City Developments.
Potential catalysts are good take-up rates for new launches while a key risk is a faster- than-expected rise in interest rates, which would erode affordability.

In our view, City Dev’s land restocking activities would enable the group to continue to ride on the residential upcycle and underpin its RNAV. Meanwhile the expansion of its new fee income platform could bolster ROE in the medium term.
The stock is trading at 34% discount to RNAV.

UOL has a high recurring income base, underpinned by rentals, hotel operations and investment holdings. It has good office exposure through UIC.
UOL is now trading at 38% discount to RNAV.

LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-06-27

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