Property Development & Inventory - CGS-CIMB Research 2020-04-15: Slower Sales In Mar20

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

Property Development & Inventory - Slower Sales In Mar20

Lower y-o-y sales in Mar

  • According to the Urban Redevelopment Authority, primary home sales for Mar 2020 came in at 904 units, or 660 units excluding executive condominiums (ECs). This represents a 32% decline m-o-m and 37% y-o-y. The majority of sales were from suburban projects which made up 50% of sales.
  • The best-selling developments in the month included Parc Esta, Jadescape and Treasure at Tampines.

Expect slower demand in near term

  • For 1Q20, total primary sales were at 2,256 units, +16% y-o-y, with 2,109 new units launched. 1Q20 sales appear to be on track, making up 25-28% of our 2020F transaction volume projections of 8,000-9,000 units. However, we expect transaction volumes in the primary and secondary markets to dwindle in the near term with the circuit breaker established in Singapore from 7 Apr to 4 May.
  • Macro slowdown on the back of the Covid-19 outbreak will likely to continue to drag on market sentiment and demand outlook, in our view.

Price upside limited by ample supply and weaker sentiment

  • The URA 1Q20 flash estimate for private home prices showed a 1.2% decline q-o-q with prices of properties in the Core Central Region showing a steeper 1.5% decline q-o-q compared to the -0.5% to -1% for projects in the city fringe and suburban locations. A total of 38 new projects with c.13,000-14,000 new units are scheduled to be launched in 2020F.
  • We expect private residential prices would remain range-bound in the near term as weaker sentiment and ample supply mean that developers would likely have to price their projects competitively.

Reiterate sector Overweight

  • Developers’ valuations are inexpensive, trading at a 57% discount to RNAV, close to - 2 s.d. discount to long-term mean. Our strategy for developers would be to prefer those with high recurring cashflow base and strong balance sheets that would enable them to tap any opportunities during this slower cycle.
  • Our preferred picks are CapitaLand (SGX:C31), City Developments (SGX:C09), UOL Group (SGX:U14).
  • Sector re-rating catalysts include good sell-through rates for new launches.
  • Downside risks include prolonged drag from the coronavirus outbreak, and weaker-than-expected macro outlook which could dampen the demand for big-ticket items such as housing.

Highlighted Companies

CapitaLand (SGX:C31)

  • ADD, Target Price S$3.60.
  • As Asia’s leading diversified real estate group, CapitaLand's strong capital recycling and deployment into new investments would continue to drive its ROE, in our view. CapitaLand is trading at a 54% discount to RNAV.

City Developments (SGX:C09)

  • ADD, Target Price S$10.23.
  • In our view, City Developments’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. City Developments is trading at a 57% discount to RNAV.

UOL Group (SGX:U14)

  • ADD, Target Price S$7.48.
  • UOL has a high recurring income base, supported by rentals, hotel operations and investment holdings. It has good office exposure through United Industrial Corp (UIC SP, NR). UOL is now trading at a 45% discount to RNAV.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-04-15
SGX Stock Analyst Report ADD MAINTAIN ADD 3.60 DOWN 4.250