Property Development & Inventory - CGS-CIMB Research 2020-08-17: Primary Home Sales Continue To Hold Up

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

Property Development & Inventory - Primary Home Sales Continue To Hold Up

Jul primary home sales remain resilient

  • According to the Urban Redevelopment Authority, primary home sales for Jul 2020 came in at 1,142 units, or 1,080 units excluding Executive Condominiums (ECs). Jul sales volume was down 8.4% y-o-y but 8.2% higher than sales volume in Jun 2020. Half of the monthly sales came from the Rest of Central Region (RCR) projects while suburban projects made up another 39% of sales.
  • The top four best-selling projects by volume were Treasure at Tampines, Parc Clematis, Florence Residences and Jadescape, accounting for one third of sales for the month.

7M20 home sales made up 57-64% of our 2020F volume projections

  • For 7M20, primary sales totalled 5,097 units, -9.5% y-o-y. 7M20 sales made up 57-64% of our 2020F transaction volume projections of 8,000-9,000 units. A total of 42 new projects are planned by developers to be marketed in 2020F, of which 15 projects have already been launched.
  • We believe that the slower macro outlook and ample supply would mean that developers would likely have to price their projects competitively to continue to move inventory.

URA residential price index 0.6% lower than end-2019

  • Meanwhile, according to Urban Redevelopment Authority’s residential price index, private home prices rose 0.3% q-o-q in 2Q20, bringing 1H20 retracement to -0.6% from end-2019. The drag came from projects located in the Rest of Central Region and Outside Central Region projects, with a -2.2% and -0.3% price retracement respectively, in 1H20.
  • Core Central Region projects improved q-o-q in 2Q20, bringing 1H20 price performance to a 0.4% uptick.
  • Overall, we expect overall private home prices to moderate by 0% to -5% for 2020F, given the weak macro outlook.

Reiterate sector Overweight

  • 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. See PDF report attached below for Singapore developers peer comparison table.
  • Our preferred picks are CapitaLand (SGX:C31), City Developments (SGX:C09), UOL Group (SGX:U14).
  • Sector re-rating catalysts: good sell-through rates for new launches.
  • Downside risks: prolonged drag from the COVID-19 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 2020-08-17
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