Property Development & Inventory - CGS-CIMB Research 2018-09-17: Slower Aug 18' Sales


Property Development & Inventory - Slower Aug Sales

  • Aug 2018 private home sales showed selective buying post cooling measures, in our view.
  • We think that fast asset turn and good sell- through rates are key to margin preservation.
  • Stay sector Neutral. Our sector top picks are City Dev, UOL and HoBee Land.

Selective buying post measures

  • Aug 2018 monthly private home sales came in at 639 units (616 units excluding executive condominiums), down 60% y-o-y and 64% m-o-m, reflecting a much quieter residential market post cooling measures. New launches such as The Tre Ver garnered 22% sales (out of a total of 729 units) within the first month of launch at an average of S$1,551 psf, in line with the company’s expectations.
  • Meanwhile, selected ongoing projects saw an additional 4-10% changing hands such as Stirling Residences (32% sold), Affinity at Serangoon (16% sold), Riverfront Residences (47% sold) and Park Colonial (57% sold).

~ SGinvestors.io ~ Where SG investors share

Slower pace of take up

  • In 8M18, non-executive condominium private home sales totalled 6,476 units, which is 27% lower than 8M17 and make up 65% of our full year expectation of 10,000 for 2018. While replacement demand from displaced enbloc sellers could provide some support for transaction volumes, overall, we expect the cooling measures to have a dampening effect on buying sentiment and pricing expectations.
  • With the rise in land prices recently, resulting in high landbank cost, any significant price retracement or prolonged land holding period could impact development margins. Good sell-through rates and faster asset turn are key to preserving development margins.

Maintain sector NEUTRAL

  • Property stocks are currently trading at a steep 47% discount to RNAV, dragged in part by macro events. As property stocks’ outperformance has historically shown the highest correlation to take-up rates, the anticipated slower sell-through rate, due to more launch units, would continue to dampen stock price performance. As such, we believe property stocks would continue to remain range-bound in the near term.
  • In terms of stock picks, we continue to prefer diversified developers with a high proportion of recurring income such as City Dev, UOL and HoBee Land. 
  • Upside risks include higher-than-expected volume transactions while downside risks include faster-than-expected hikes in mortgage rates which would erode affordability.

Highlighted Companies

City Developments (SGX:C09)

  • Rating: ADD, Target Price S$10.89.
  • In addition to its residential activities, expansion of its fee and recurring income platform could bolster CIT’s ROE in the medium term. The stock is trading at a 48% discount to RNAV.

Ho Bee Land (SGX:H13)

  • Rating: ADD, Target Price S$3.00.
  • HoBee Land derives 80-90% of its revenue from rental income from its office properties in Singapore and the UK. The stock is trading at a 50% discount to its RNAV.

UOL Group (SGX:U14)

  • Rating: ADD, Target Price S$8.45.
  • UOL has a high recurring income base, supported by rentals, hotel operations and investment holdings. It has good office exposure through United Industrial Corp. UOL is now trading at 43% discount to RNAV. 

LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-09-17
SGX Stock Analyst Report ADD Maintain ADD 8.450 Same 8.450
ADD Maintain ADD 10.890 Same 10.890
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