Property Development & Inventory - CGS-CIMB Research 2020-09-15: Strong Aug Home Sales

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

Property Development & Inventory - Strong Aug Home Sales

Aug ex-ECs primary home sales rose 11.8% y-o-y to 1,256 units.
8M20 volume sales formed 70-79% of our 2020F volume sales projection.
Reiterate 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 Aug 2020 came in at 1,307 units, or 1,256 units excluding Executive Condominiums (ECs).
Aug sales volume was up 11.8% y-o-y and 16.3% higher than sales volume in Jul 2020. Half of the monthly sales volume came from the Rest of Central Region (RCR) projects, boosted by the newly-launched Forrett at Bukit Timah which made up one third of RCR sales and c.17% of sales for the month.
Suburban projects made up another 40% of sales, led by projects such as Treasure at Tampines, Parc Clematis and The Garden Residences.

For 8M20, primary sales totalled 6,353 units, -6% y-o-y. 8M20 sales made up 70-79% of our 2020F transaction volume projections of 8,000-9,000 units.
Meanwhile, according to Singapore Real Estate Exchange (SRX), the non-landed resale market also continued to improve with 1,052 units changing hands in Aug 2020 (+7% m-o-m, +36% y-o-y) and is the highest monthly volume achieved since Aug 2018.

In terms of prices, according to Urban Redevelopment Authority’s residential price index, private home prices in 1H20 were 0.6% lower than at end-2019. Overall, we expect overall private home prices to moderate by 0% to -5% for 2020F, despite the improved volumes, given the weak macro outlook.
A slew of 42 new projects are planned by developers to be marketed in 2020F and we believe that the slower macro outlook and ample supply would mean that developers would likely have to price their projects competitively in order to keep moving inventory.

Developers’ valuations are inexpensive, trading at 56% 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.
Preferred picks: 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 2020-09-15

SGX Stock Analyst Report ADD MAINTAIN ADD 3.420 SAME 3.420

ADD MAINTAIN ADD 7.290 SAME 7.290

ADD MAINTAIN ADD 10.100 SAME 10.100