SINGAPORE (Oct 16): CGS-CIMB Research is maintaining its “neutral” stance on Singapore’s property sector post the release of recent Urban Redevelopment Authority (URA) data, which reflected higher September monthly home sales of 944 transactions, up 51% m-o-m and 42% y-o-y.
In a Monday report, analyst Lock Mun Yee notes that despite the positive momentum in home sales, the take-up rate remains fairly modest at 0.8 times as sales pace has yet to catch up with the launch volume.
While she expects replacement demand from displaced en-bloc sellers to provide some support for transaction volumes, Lock believes the recent property cooling measures announced in July will continue to dampen buying sentiment and pricing expectations.
“The pace of price increase has slowed, with 3Q18 URA flash estimate rising a marginal 0.5% q-o-q vs. +3.4% q-o-q in 2Q18. This brings price increase to 9.6% since 2Q17 and +7.9% YTD. However, prices in the city fringe area fell 0.8% q-o-q, the first decline since 2Q17,” says the analyst.
“Property stocks are currently trading at 49% discount to RNAV, at -1 s.d. discount to mean and at 0.63x P/BV dragged by macro events and rising interest rate fears. We expect property stocks to trade range-bound in the near term.”
As such, Lock is recommending diversified developers with a higher proportion of recurring income.
These include City Developments (CDL) for the expansion of its fee and recurring income platform, which she believes should bolster the group’s ROE in the medium-term; Ho Bee Land, which derives 80-90% of its revenue from rental income from its office portfolio in Singapore and the UK, and UOL Group for its high recurring income base supported by a mix of rental, hotel, investment and office income.
All three stocks are rated “add” with the respective target prices of $10.89, $3 and $8.45, and are more or less trading at about 50% discount to RNAV.
“Upside risks include higher-than-expected transaction volumes while downside risks include faster than projected interest rate hikes,” concludes Lock.
As at 11:07am, shares in CDL, Ho Bee and UOL are trading at $8.30, $2.45 and $6.19, respectively.
