Property Development & Inventory - CGS-CIMB Research 2019-07-15: Slow And Steady

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

Property Development & Inventory - Slow And Steady

Jun’s monthly home sales volume was 25% higher y-o-y but 14% slower m-o-m.
6M19 sales of 4,455 units is midway at the lower end of our expectations of 9,000-10,000 units for the full year.
Maintain sector Overweight; our preferred picks are UOL, CapitaLand and City Developments.

Jun’s primary home sales came in at 822 units (including 1 unit of executive condominium sale). Excluding ECs, the sale quantum was 25% higher y-o-y but 14% slower m-o-m. Sales were well distributed between city fringe (48% of sales) and suburban projects (45% of sales). Developments that did well include Sky Everton, Parc Botannia and Treasures at Tampines. Total sales represent a take-up rate of 1.23x for the month.

This brings YTD Jun ex-EC sales to 4,455 units, which is 8% ahead of sales at the same period last year. This represents a take-up rate of 80% for the units launched to date, indicating continued buying interest in the market.
We maintain our expectation for a 9,000-10,000 sales volume for 2019F.

According to the Urban Redevelopment Authority, the property price index increased 1.3% q-o-q in 2Q19, led by city fringe projects. We expect private residential prices to remain competitive in the face of a large number of new launches in the pipeline and maintain our expectation of a modest 0-3% hike in prices this year.

Developers are trading at an average 44% discount to RNAV, between -1 s.d. and -2 s.d. to the long-term mean. Current valuations are still inexpensive, in our view. We expect property stocks to remain rangebound, awaiting fresh catalysts such as improvements in sell-through rates or sustainable take-up rates.
We like diversified companies such as UOL, CapitaLand and City Developments, given their diversified income sources and growing recurring income base.
Downside risks include an economic slowdown which could dampen demand for big ticket items such as housing.

ADD, Target Price S$4.15.
As Asia’s leading diversified real estate group, strong capital recycling and deployment into new investments would continue to drive ROE. The stock is trading at a 42% discount to RNAV.

ADD, Target Price S$10.66.
In our view, City Developments (SGX:C09)’s land restocking activities would extend its residential earnings visibility. New investments in Europe and strategic investments in China would enable the group to deploy balance sheet capacity. The stock is trading at a 42% discount to RNAV.

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 (SGX:U06). UOL is now trading at a 37% discount to RNAV.

LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2019-07-15

SGX Stock Analyst Report ADD MAINTAIN ADD 4.150 SAME 4.150

ADD MAINTAIN ADD 10.660 SAME 10.660

ADD MAINTAIN ADD 8.450 SAME 8.450