Property Development & Inventory - CGS-CIMB Research 2019-03-15: Holding Up

Property Development & Inventory - CGS-CIMB Research | SGinvestors.io CAPITALAND LIMITED (SGX:C31) CITY DEVELOPMENTS LIMITED (SGX:C09) UOL GROUP LIMITED (SGX:U14)

Property Development & Inventory - Holding Up




Feb sales relatively stable m-o-m

  • Feb 2019 primary home sales came in at 455 units (457 units including executive condominiums), up 4.4% on a month on month basis and 18.5% higher from a year ago. 
  • Against 596 units released into the market, this represents a 76% take-up rate. The bulk of the sales came from projects such as Affinity at Serangoon, The Tre Ver and Riverfront Residences.


Slow start but expect pick-up as new launches ramp-up

  • This brought Jan-Feb sales to 891 units, marginally down from the same period in 2018. Suburban sales made up half of these transactions while city fringe projects accounted for another 39% of sales.
  • Although transaction run rates have so far been tracking below our annual expectation of 9,000-10,000 units for 2019, we maintain our forecasts as we expect more launches during the rest of the year.


Private home prices to remain range-bound

  • According to SRX Property Price Index, resale prices for non-landed properties in Feb 19 ticked up 0.5% m-o-m but were still 0.9% lower from the peak in July 18.
  • We expect residential prices to remain competitive in the face of a large number of potential new launches. Hence, we retain our expectation for private home prices to fluctuate between 0% and +3% in 2019.


Maintain sector Overweight

  • Developers’ share prices are at an average 48% discount to RNAV, midway between discounts of 1 s.d. to 2 s.d. to long-term mean. Current valuations are inexpensive, in our view. We expect property stocks to trade range-bound while awaiting fresh sector catalysts, such as an improvement in sell-through rates or sustainable take-up rates.
  • We like diversified companies such as CITY DEVELOPMENTS LIMITED (SGX:C09), UOL GROUP LIMITED (SGX:U14) and CAPITALAND LIMITED (SGX:C31), given their diversified income sources and high recurring income base.
  • Downside risks include economic slowdown which could dampen buying appetite for big-ticket items such as housing.


Highlighted Companies


CAPITALAND LIMITED (SGX:C31) 

  • Rating: ADD, Target Price S$3.56.
  • Strong capital recycling and deployment into new investments would continue to drive ROE expansion. Recent transformational acquisition of Ascendas-Singbridge should propel the group to Asia’s leading diversified real estate group.

CITY DEVELOPMENTS LIMITED (SGX:C09)

  • Rating: ADD, Target Price S$10.66.
  • In addition to residential activities, expansion of City Dev’s fee income platform should bolster its ROE in the longer term. The stock is trading at 45% discount to RNAV.

UOL GROUP LIMITED (SGX:U14)

  • Rating: ADD, Target Price S$8.45.
  • Diversified recurrent revenue sources from rental income and hotel operations should continue to underpin profitability.
  • Planned launch of two residential projects in 2019 should drive residential earnings visibility.





LOKE Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2019-03-15
SGX Stock Analyst Report ADD MAINTAIN ADD 3.560 SAME 3.560
ADD MAINTAIN ADD 10.660 SAME 10.660
ADD MAINTAIN ADD 8.450 SAME 8.450



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