SINGAPORE (Sept 18): CGS-CIMB Securities is remaining “neutral” on Singapore’s property sector after Aug 2018 private monthly home sales came in at 639 units, down 60% y-o-y and 64% m-o-m.

In a Monday report, analyst Lock Mun Yee says she believes the latest data reflects a “much quieter” residential market and selective buying post cooling measures, which she expects to have an overall dampening effect on buying sentiment and pricing expectations going forward.

She also notes a slower pace of take up in non-executive condominium private home sales at a total of 6,476 units, 27% lower than a year ago and making up 65% of CGS-CIMB’s full-year expectation of 10,000 for 2018.

In Lock’s view, property stocks are currently trading at a steep 47% discount to RNAV partially due to macro events, and will continue to remain range-bound in the near term.

“As property stocks’ outperformance has historically shown the highest correlation to take-up rates, the anticipated slower sell-through rate, due to more launch units, would continue to dampen stock price performance,” explains the analyst.

Her top “add” picks include City Developments (CDL), which is trading at a 48% discount to RNAV and has a target price of $10.89. Lock believes that in addition to its residential activities, the expansion of CDL’s fee and recurring income platform could bolster the group’s ROE in the medium-term.

Another top developer pick is Ho Bee Land, rated “add” with a target price of $3. The group derives 80-90% of its revenue from rental income from its office properties in Singapore and the UK. As at its $2.51 close last Friday, the stock is trading at a 50% discount to its RNAV.

Last but not least, UOL Group, rated “add” with a target price of $8.45, has been highlighted for its high recurring income base supported by rentals, hotel operations and investment holdings.

Lock continues to like UOL for its good office exposure through United Industrial Corp. At its $6.89 close on Friday, the stock is trading at a 43% discount to RNAV.

Nevertheless, Lock cautions, “With the rise in land prices recently, resulting in high landbank cost, any significant price retracement or prolonged land holding period could impact development margins. Good sell-through rates and faster asset turn are key to preserving development margins."

“Upside risks include higher-than-expected volume transactions while downside risks include faster-than-expected hikes in mortgage rates which would erode affordability,” she adds.

As at 10.47am, shares in CDL, Ho Bee Land and UOL are trading at $8.67, $2.47 and $6.82, respectively.

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