Property Development & Inventory - CGS-CIMB Research 2018-10-15: Better September Sales

Singapore Property & Inventory - CGS-CIMB Research | SGinvestors.io CITY DEVELOPMENTS LIMITED (SGX:C09)

Property Development & Inventory - Better September Sales

  • Primary home sales were higher in Sep, underpinned by two new launches.
  • YTD overall transaction volumes are down y-o-y, while price momentum has slowed.
  • Maintain sector Neutral. 
  • We prefer diversified developers such as City Dev, UOL and HoBee.

Higher Sep monthly home sales, but take-up rates remain soft

  • Urban Redevelopment Authority’s (URA) Sep primary home sales continue to be decent, clocking in 944 transactions (932 units excluding executive condos (ECs)), up 51% m-o-m and +42% y-o-y. About 44% of this was made up by the launch of The Jadescape (26% sold) and Mayfair Gardens (38% sold), while ongoing projects such as Stirling Residences (35% sold), Park Colonial (63% sold) and Riverfront Residences (50% sold) continued to see additional units changing hands.
  • However, take-up rate (defined as new sales over new launch units) remains fairly modest at 0.8x as sales pace has not caught up with launch volume.

Price momentum slows

  • For 9M18, non-executive condo sales totalled 7,409 units, down 23% y-o-y, and made up 74% of our full year projection of 10,000 units for 2018. 
  • While we expect replacement demand from displaced enbloc sellers to provide some support for transaction volumes, the cooling measures put in place in Jul continue to dampen buying sentiment and pricing expectations.
  • The pace of price increase has slowed, with 3Q18 URA flash estimate rising a marginal 0.5% q-o-q vs. +3.4% q-o-q in 2Q18. This brings price increase to 9.6% since 2Q17 and +7.9% YTD. However, prices in the city fringe area fell 0.8% q-o-q, the first decline since 2Q17.

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Maintain sector Neutral

  • Property stocks are currently trading at 49% discount to RNAV, at -1 s.d. discount to mean and at 0.63x P/BV dragged by macro events and rising interest rate fears. We expect property stocks to trade range-bound in the near term.
  • As property stocks’ outperformance has historically shown the highest correlation to take-up rates, we think the slower sell-through rate would likely continue to dampen stock performance.
  • In terms of stock picks, we prefer diversified developers with a high proportion of recurring income such as City Dev, UOL and HoBee.
  • Upside risks include higher-than- expected transaction volumes while downside risks include faster than projected interest rate hikes.

Highlighted Companies

City Developments

  • ADD, Target Price S$10.89.
  • In addition to its residential activities, expansion of its fee and recurring income platform should bolster CIT’s ROE in the medium term. The stock is trading at a 51% discount to RNAV.

Ho Bee Land

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

UOL Group

  • 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

LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-10-15
SGX Stock Analyst Report ADD MAINTAIN ADD 10.890 SAME 10.890