Property Development & Inventory - CGS-CIMB Research 2021-07-15: Holding Up Well

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

Property Development & Inventory - Holding Up Well

  • Singapore’s Jun home sales were down 2.6% m-o-m and -12.6% y-o-y.
  • YTD sales volume remains robust, underpinned by active buying interest
  • Reiterate sector Overweight on valuations. Stock picks: CapitaLand, UOL and City Developments.

Jun home sales likely affected by viewing restrictions

  • Jun 2021 monthly home sales came in at 962 units. Excluding executive condominiums (ECs), monthly home sales were 872 units, 12.6% lower y-o-y and 2.6% below May 2021 level, due to restrictions from the COVID-19 P2 Heightened Alert (16 May to 13 Jun). The sales rate in Jun continued to outpace new launch volumes.
  • The top selling projects for the month included Hyll on Holland, Treasure at Tampines and Normanton Park.
  • Outside Central Region (OCR) projects made up 39% of monthly volume transactions; city fringe projects made up 38% of sales; while projects in the Core Central Region (CCR) accounted for another 23% of volume sales.

Sales volumes continued to be underpinned by robust demand

  • Transactions in the first six months of 2021 totalled 6,603 units (+64.4% y-o-y), making up 66-73% of our full-year expectations of 9,000-10,000 units. Meanwhile, according to Singapore Real Estate Exchange (SRX) data, the resale market remained active, with 1,510 units changing hands in Jun (-12.6% m-o-m), significantly higher than the 506 units transacted in Jun 2020, thanks to active transactions in the OCR.
  • Demand was underpinned by the still-low interest rate environment, in our view.

1H21 private home prices up 4.2% from end-2020

  • According to the URA flash estimate, private residential prices rose 0.9% q-o-q in 2Q21, bringing 1H21 increase to 4.2% vs end-2020. Similarly, SRX reported that private resale home prices also improved 4.8% from end-2020 level.
  • We anticipate prices to remain supported by continued buying interest. Overall, we expect prices to pace economic recovery as developers continue to move inventory.

Reiterate sector Overweight

  • Developers’ valuations still look inexpensive to us, trading at a 48% discount to RNAV, close to 1 standard deviation below the long-term mean discount. We prefer developers 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), UOL Group (SGX:U14) and City Developments (SGX:C09).
  • See peer comparison table for property developer peers including Frasers Property (SGX:TQ5), GuocoLand (SGX:F17), Wing Tai (SGX:W05), Hongkong Land (SGX:H78) 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 demand for big-ticket items, such as housing.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-07-15
SGX Stock Analyst Report ADD MAINTAIN ADD 4.040 SAME 4.040