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

CAPITALAND LIMITED (SGX:C31) CITY DEVELOPMENTS LIMITED (SGX:C09) UOL GROUP LIMITED (SGX:U14)

Property Development & Inventory - Holding Up

Feb monthly sales volumes were higher m-o-m and y-o-y.
We expect transaction volumes to remain stable y-o-y in 2019.
Maintain sector OVERWEIGHT; preferred picks are CITY DEVELOPMENTS LIMITED (SGX:C09), UOL GROUP LIMITED (SGX:U14) and CAPITALAND LIMITED (SGX:C31).

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.

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.

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.

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.

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.

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.

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