Property Development & Inventory - CGS-CIMB Research 2020-07-15: Rebound In June Primary Home Sales

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

Property Development & Inventory - Rebound In June Primary Home Sales

Jun20 ex-EC home sales rebounded m-o-m to 998 units.
1H20 home sales in line with our expectations, even as prices weaken by 1.1% q-o-q.
Maintain sector Overweight on valuations. Preferred picks: CapitaLand (SGX:C31), City Developments (SGX:C09), UOL Group (SGX:U14).

According to the Urban Redevelopment Authority, primary home sales for Jun 2020 came in at 1,031 units, or 998 units excluding Executive Condominiums (ECs). Jun sales volume was up 21% y-o-y and more than double the 486 units transacted in May 2020. The top three best-selling projects by volume were Treasure at Tampines, Parc Clematis and Florence Residences.
Outside Central Region (OCR) sales made up 49% of monthly sales while those in the city fringe areas accounted for another 43%.

For 6M20, primary sales totaled 4,017 units, -9.8% y-o-y. 6M20 sales made up 45-50% of our 2020F transaction volume projections of 8,000-9,000 units. Meanwhile, according to Urban Redevelopment Authority’s residential flash estimate, private home prices declined 1.1% q-o-q in 2Q20, bringing 1H20 retracement to -2% from end-2019.
The drag came from projects located in the Core Central Region and Rest of Central Region. Suburban home prices fairly stable and remained 0.2% higher than end-2019 levels.

We expect overall private home prices to moderate by 0% to -5% for 2020F. A total of 38 new projects with c.13,000-14,000 new units are scheduled to be launched in 2020. In the near term, slower market sentiment and ample supply would mean that developers would likely have to price their projects competitively to continue to move inventory.

Developers’ valuations are inexpensive, trading at 55% discount to RNAV, close to the -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 into any opportunities during this slower cycle.
Our preferred picks are CapitaLand (SGX:C31), City Developments (SGX:C09), UOL Group (SGX:U14).
Sector upside risks: 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 2020-07-15

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