City Developments Limited (CDL) and the UOL Group have been named CGS-CIMB Research’s top picks among the property sector as the month of July saw brisk home sales.
“With the residential market still enjoying brisk transaction activity, we prefer developers with visible residential pipelines and strong balance sheets that would enable them to tap into any opportunities during this slower cycle,” CGS-CIMB analyst Lock Mun Yee writes in an Aug 16 report.
Home sales in July grew by 46.7% y-o-y and 82.2% m-o-m to 1,589 units, excluding executive condominiums (ECs).
The higher volume transactions were thanks to the launch of Pasir Ris 8.
Other top-selling projects for the month include Normanton Park, Midwood and Sengkang Grand Residences.
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On this, Lock has kept her “overweight” call on the property sector as developers’ valuations continue to look “inexpensive” trading at a 46% discount to revalued net asset value (RNAV) and close to 1 standard deviation (s.d.) below long-term mean discount.
She has also raised her home sales projection for FY2021 to 11,000 – 12,000.
“Based on planned launches highlighted by property agencies, there is potentially another 13 new private condominium and EC projects to be launched in the rest of 2021F and another 19,384 of unsold units (at end-2Q2021) in the pipeline,” Lock writes.
Meanwhile, the resale market picked up in by 68.2% y-o-y and 22.5% m-o-m to 1,817 units changing hands, according to data by the Singapore Real Estate Exchange (SRX).
The demand, views Lock, was underpinned by the still-low interest rate environment.
In addition, Lock has upped her home price performance expectation to +5-7% from 0-5% previously.
“We anticipate prices to stay supported by continued buying interest. Overall, we expect prices to pace economic recovery as developers move inventory,” she says.
For her preferred picks, CDL and UOL, Lock says CDL’s land restocking activities with a potential launch in the pipeline of some 2,000 units would extend the visibility of its residential earnings.
“Value unlocking activities and nascent recovery of the global hospitality industry could catalyse [CDL’s] share price. The stock is trading at a 58% discount to RNAV,” she says.
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UOL has a high recurring income base, which is being supported by rentals, hotel operations and investment holdings.
“It has good office exposure through United Industrial Corp. UOL is now trading at a 46% discount to RNAV,” she adds.
CGS-CIMB has recommended “add” on both CDL and UOL with target prices of $8.97 and $8 respectively.