Property Development & Inventory - CGS-CIMB Research 2020-11-16: Low Volume In The Absence Of New Launches

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 - Low Volume In The Absence Of New Launches

Low volume in the absence of new launches

  • According to the Urban Redevelopment Authority, primary home sales for Oct 2020 came in at 682 units, or 642 units excluding Executive Condominiums (ECs). Oct sales volume was down 31% y-o-y and 52% m-o-m, in the absence of new project launches.
  • About 45% of the monthly sales volume came from the Outside Central Region (OCR) projects with another 44% from the Rest of Central region (RCR) developments. Ongoing developments such as The Garden Residences, Treasure at Tampines and Parc Clematis, saw 49-53 units changing hands each. Projects in the Core Central Region (CCR) accounted for the balance 11% of monthly sales.

10M20 home sales at 92% of our 2020F projection, i.e. higher end

  • In 10M20, primary sales dipped 7% y-o-y to 8,329 units. 10M20 sales made up 92%, i.e. the higher end of our 2020F transaction volume projections of 9,000 units. This raises the possibility that 2020F home sales could exceed our current forecast.
  • Meanwhile, according to Singapore Real Estate Exchange (SRX), the non-landed resale market also continued to improve with 1,509 units changing hands in Sep 2020 (+21.6% m-o-m, +72.9% y-o-y), led by strong transaction volumes in the Outside Central Region.

3Q20 private home prices higher q-o-q

  • According to the Urban Redevelopment Authority, 3Q20 residential price index is 0.8% higher q-o-q, buoyed by rise in non-landed prices in the RCR and OCR. This nudged private home prices to 0.1% above end-2019 levels.
  • Overall, we expect prices to stay range-bound in 2020F as we believe that the slower macro outlook implies that developers would have to price their projects competitively in order to move inventory.

Reiterate sector Overweight

  • Developers’ valuations look inexpensive to us, 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). See Singapore developers peer comparison table in PDF report attached below.
  • 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 2020-11-16
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