Property Development & Inventory - CGS-CIMB Research 2021-04-01: Strong Private Home Price Showing In 1Q21

SGinvestors.io

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

Property Development & Inventory - Strong Private Home Price Showing In 1Q21

• 1Q21 flash estimate for private home prices was up 2.9% q-o-q.
• Continued strong uptick in prices could heighten risk of new cooling measures
• Reiterate sector Overweight on valuations. Preferred picks: CapitaLand (SGX:C31), UOL Group (SGX:U14), City Developments (SGX:C09).

Flash estimate for private home prices shows stronger q-o-q growth

• According to the Urban Redevelopment Authority (URA), the property price index flash estimate for 1Q21 showed that private home prices rose 2.9% q-o-q vs the 2.1% q-o-q increase in 4Q20. Prices in the Rest of Central Region (RCR) delivered the strongest improvement of +6.1% q-o-q vs the +0.9% rise in Outside Central Region and the 0.3% q-o-q decline in private home prices in the Core Central Region.
• Meanwhile, the Housing Development Board resale price flash estimate showed that HDB resale prices rose 2.8% q-o-q in 1Q21.

Private homes and HDB resale prices up 6.2-8.6% from recent low

• With the latest data points, private home prices have risen in the last four consecutive quarters, by 6.2% from the 1Q20 low. HDB resale prices have also risen by 8.6% from its 2Q19 low.
• The improvement in private home prices in 1Q21 is ahead of our expectation of up-to-a-5% increase for the whole of 2021F.
• We believe that robust take-up during new launches, active secondary market transactions amid a still low mortgage rate environment and potentially, wealth creation from a robust stock market performance, were supportive of selling prices.

Higher possibility of new cooling measures

• Given the strong price performance in the past two quarters amid healthy transaction volumes, further upticks in prices in upcoming quarters would mean that the possibility of new property cooling measures is likely heightened.

Reiterate sector Overweight

• Nonetheless, developers’ valuations still look inexpensive to us, trading at a 45% discount to RNAV, close to 1 s.d. below long-term mean discount. We prefer developers with high recurring cashflow bases and strong balance sheets that would enable them to tap into any opportunities during this slower cycle.
• Our preferred picks are CapitaLand (SGX:C31), UOL Group (SGX:U14), City Developments (SGX:C09). See comparison of property developer peers including Frasers Property (SGX:TQ5), GuocoLand (SGX:F17), Ho Bee Land (SGX:H13), Wing Tai (SGX:W05) in report attached below.
• Sector re-rating catalysts: good sell-through rates for new launches.
• Downside risks: faster-than-expected interest rate hikes, and weaker-than-expected macro outlook which could dampen the demand for big-ticket items such as housing.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-04-01

SGX Stock Analyst Report ADD MAINTAIN ADD 4.040 SAME 4.040

ADD MAINTAIN ADD 8.970 SAME 8.970

ADD MAINTAIN ADD 7.910 SAME 7.910