Singapore Residential Sector - OCBC Investment 2019-03-18: A New Train Line, A Boost To Sales

CAPITALAND LIMITED (SGX:C31) UOL GROUP LIMITED (SGX:U14)

Singapore Residential Sector - A New Train Line, A Boost To Sales

Following a turbulent year in 2018 whereby SG developers under our coverage registered average total returns of -20.4%, a more risk-on market sentiment this year has aided a recovery in share prices YTD, with total returns of +7.0%. This was led by OUE LIMITED (SGX:LJ3) and CAPITALAND LIMITED (SGX:C31), which delivered total returns of 16.8% and 10.6%, respectively.
Overall, the FTSE ST Real Estate Holding & Development Index (FSTREH) has seen total returns of +12.4% YTD, in-line with the STI but an outperformance against the MSCI AxJ Real Estate Index (+4.7%).
During our strategy report in Dec (see report: SG Residential Property - Tough Love For A Sustainable Future), we had highlighted that valuations for Singapore developers were cheap, and hence this share price recovery does not surprise us. However, we remain wary of the near-term outlook.

In terms of demand YTD, Jan private home sales were weak as expected, with 436 units (excluding ECs) sold (-17.3%).
Feb sales data, which was released last Friday, showed a more encouraging uptick of +4.4% q-o-q and +18.5% y-o-y to 455 units. This was driven in part by the government’s announcement in late-Jan on the new Cross Island Line. This will be Singapore’s eighth MRT line, with a targeted completion in 2030. It will serve the Eastern, Western, and North-Eastern corridors and link major hubs such as Changi region, Jurong Lake District and Punggol Digital District. Developers with projects near the line took the opportunity to launch more units.
There were 596 units launched in Feb, and the three best-selling projects were The Affinity (88 units sold at a median ASP of S$1,494 psf), Riverfront Residences (49 units sold at a median ASP of S$1,322 psf) and The Tre Ver (48 units sold at a median ASP of S$1,574 psf).

Looking ahead, we expect transaction volumes to gather momentum with more new projects to be launched. The launch by end-March of Sim Lian Group’s Treasure at Tampines would be a big litmus test for the market, given the massive scale of the project with 2,203 units. This project is expected to reap ASPs of ~S$1,280 psf according to media reports. Its preview launch started last Friday. We visited the showflat over the weekend, and noticed a decent crowd size.
In terms of valuation for the sector, the FSTREH is trading at a forward P/B ratio of 0.57x, which is 1.5 standard deviations below its 10-year average of 0.78x. However, in light of the softer macroeconomic outlook and sizeable launches expected in 2019 which may stymie price growth, we maintain NEUTRAL on the Singapore residential sector.
Our preferred sector picks are UOL GROUP LIMITED (SGX:U14) [BUY; Fair Value: S$8.45] and CAPITALAND LIMITED (SGX:C31) [BUY; Fair Value: S$3.98].

Wong Teck Ching Andy CFA OCBC Investment Research | https://www.iocbc.com/ 2019-03-18

SGX Stock Analyst Report BUY MAINTAIN BUY 3.980 SAME 3.980

BUY MAINTAIN BUY 8.450 SAME 8.450