Property Devt & Invt - CGS-CIMB Research 2018-11-16: Quiet October

Property Development & Inventory - CGSCIMB Reseaerch | SGinvestors.io CITY DEVELOPMENTS LIMITED (SGX:C09) UOL GROUP LIMITED (SGX:U14)

Property Devt & Invt - Quiet October

  • Oct primary home sales were 487 units, down 48% m-o-m and 36% y-o-y on the back of low new launch volume.
  • 10M18 sales at c.80% of our 2018 projections.
  • Maintain sector Neutral, top picks are CIT and UOL.

Lacklustre Oct monthly primary home sales

  • Oct primary home sales came in at 487 units (510 units including executive condominiums), down 48% m-o-m and 36% y-o-y. This was largely due to a low 202 new units launched during the month. Projects that were selling well in Oct included Stirling Residences, Riverfront Residences, Affinity at Serangoon, Park Colonial, The Tre Ver, and The Tapestry.
  • Sales in the Outside Central Region (OCR) accounted for 43% of transactions while Rest of Central Region (RCR) made up another 50%.
  • Oct take up rate (i.e. new sales over new launch units) was 2.4x due to the low base, and brought 10M18 take up rate to 103% (vs. 176% for the whole of 2017).

Volume and price momentum slowing, as expected

  • For 10M18, non-executive condo sales totalled 7,896 units (-24% y-o-y) and make up c.80% of our full-year projection of 10,000 units for 2018. While the property cooling measures introduced in Jul have dampened buying sentiment and pricing expectations, we expect replacement demand from displaced enbloc sellers and attractively priced projects to continue generating some buying interest.
  • The Urban Redevelopment Authority (URA) property price index showed a 0.5% q-o-q increase in 3Q18. However, a closer look indicated that prices in the RCR and OCR slipped 1.3%/0.1% q-o-q, offset by a 1.3% q-o-q increment in Core Central Region (CCR) prices.

Maintain sector Neutral

  • Property stocks are currently trading at 49% discount to RNAV, midway between discounts of 1s.d. and 2s.d. to long-term mean. We expect property stocks to trade range bound while awaiting fresh catalysts such as an improvement in sell-through rates or transaction volumes while downside risks include faster-than-expected interest rate hikes.
  • We continue to like diversified developers such as CIT and UOL, given their diversified income source with a high recurring income component.

Highlighted Companies

City Developments

  • ADD, Target Price S$10.65.
  • In addition to residential activities, expansion of CIT's fee income platform should bolster its ROE in the longer term.
  • The stock is trading at a 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 Corp. UOL is trading at a 49% discount to RNAV.

LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-11-16
SGX Stock Analyst Report ADD MAINTAIN ADD 10.650 SAME 10.650