Property Development & Inventory - CGS-CIMB Research 2020-06-24: Keeping Land Supply Moderated

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

Property Development & Inventory - Keeping Land Supply Moderated

• New residential units from the GLS programme has marginally changed from 6,490 in 1H20 to 6,670 units in 2H20F.
• Moderated new land supply and declining pipeline inventory are likely to be supportive of home prices in the longer term, in our view.
• Reiterate sector Overweight. Our preferred picks are CapitaLand (SGX:C31), City Developments (SGX:C09), UOL Group (SGX:U14).

2H20 GLS programme offers 12 confirmed and reserve sites

• The government has released land sites for 6,670 residential units (1,370 confirmed, 5,300 reserved), 101.5k sq m GFA of commercial space and 1,070 hotel rooms under its 2H2020 government land sale programme (GLS). Of the total 12 sites, four are new offerings namely at Northumberland Rd, Ang Mo Kio Ave 1, Tengah Garden Walk and Lentor Central.
• The government also indicated that the Confirmed List sites will be launched in 4Q20, each with a longer tender period of about six months to give developers more time to make their assessment in view of the ongoing Covid-19 situation.

Marginal change in overall 2H20F private housing supply

• Overall, on a hoh basis, private residential supply is marginally changed from the total of 6,490 units offered in 1H20. That said, the number of residential units offered under the confirmed list is lower vs. that in 1H20. This is the second year, since 2019, that land supply for residential units remains below 15k units p.a.
• We see this moderated land sale programme as positive for the sector as it allows the market to assess the impact of Covid-19 on the sector and also to digest the anticipated large number of new launches scheduled to be rolled out this year.

Declining unsold residential pipeline inventory

• According to the Urban Redevelopment Authority (URA), there are about 48,868 private housing units in the pipeline at end-1Q20, including 29,149 unsold units. In addition, there is another 1,950 EC units that remained unsold at end-1Q20. Unsold inventory have been declining since 3Q18. This should also be supportive of private home prices in the longer run.

Reiterate sector Overweight

• Developers’ valuations are attractive, trading at 54% discount to RNAV, close to the -2s.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).
• For RNAV breakdown of CapitaLand, City Developments and UOL Group, see PDF attached in the following recent reports: 
  • CapitaLand - CGS-CIMB Research 2020-05-05: Navigating Through Uncertain Times.
  • City Developments - CGS-CIMB Research 2020-05-12: Near-Term Headwinds.
  • UOL Group - CGS-CIMB Research 2020-05-18: Trying Times.
• Re-rating catalysts: good sell-through rates for new launches.
• Downside risks: prolonged drag from the coronavirus outbreak, and weaker-than-expected macro outlook which could dampen demand for big-ticket items such as housing.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-06-24

SGX Stock Analyst Report ADD MAINTAIN ADD 3.520 SAME 3.520

ADD MAINTAIN ADD 7.250 SAME 7.250

ADD MAINTAIN ADD 10.230 SAME 10.230