SINGAPORE (Jan 16): CIMB is retaining its sector “overweight” on Singapore’s property market while anticipating for primary home sales to improve y-o-y to 11,000 to 12,000 units, and private home prices to rise by up to 5% y-o-y.
Developers UOL and City Developments (CDL) have been rated as the research house’s top “add” picks at target prices of $13.15 and $9.62 respectively.
In a Monday flash note, analyst Lock Mun Yee says CDL’s land restocking activity should enable the group to continue riding the residential upcycle and underpin its RNAV expansion, while noting that the stock is trading at a 21% discount to RNAV as of last Friday’s closing price of $13.04.
Meanwhile, she likes UOL for its high recurring income based and good office exposure through UIC. The stock is trading at a 23% to RNAV based on its Friday closing price of $9.28.
Overall, the analyst highlights that property stocks are now trading at an estimated 33% discount to their RNAV, underscoring CIMB’s belief that the property sector will still perform the Straits Times Index (STI) given the nascent recovery in residential prices and improved market sentiment.
“Going into 2018… We expect displaced homeowners from enbloc sales and organic household formation to continue to underpin demand for housing. We think developers would continue to replenish their land inventory, both from enbloc sales as well as from the government's land sale,” comments Lock.
“Catalysts such as robust land restocking should continue to boost the RNAVs of developers, in our view. Key risks include a faster-than-expected rise in mortgage rates, which could erode affordability,” she adds.
As at 10:52am, shares in UOL and CDL are trading at $9.32 and $13.42, implying FY18 forecasted dividend yields of 1.54% and 1.55%, respectively .
