KUALA LUMPUR: CGS-CIMB Equities Research believes the property sector’s upside is capped by affordability issues, slower gross domestic product (GDP) growth and weaker new property sales.
“Sime Darby Property is our sector top pick as it is likely to benefit from future trends, supported by its strong balance sheet and improving new sales,” it said in a report on Friday.
The research house said its economists lowered Malaysia’s 2019 GDP growth forecast to 4.5% (from 4.7% previously) and retained their projection for a sustained moderation to 4.4% in 2020F as headwinds to investment and in the export-oriented sectors remain formidable.
“We do not see much downside risk for the property sector either given that the KL Property Index is currently trading at 0.5 times price-book value (P/BV), two standard deviations below its historical 10-year P/BV of 0.75 times. Maintain sector Neutral,” it said.
CGS-CIMB Research said overall, the combined FY19F new property sales targets for the six property developers under its coverage (based on the companies’ sales guidance) were lower than their combined FY18 new property sales targets as well as their combined FY18 actual new property sales.
“This signals that the property market outlook remains soft, in our view. We also observe that the bigger developers, except Sime Darby Property, slightly missed their respective FY19F new sales targets vs. smaller mass market players, such as Mah Sing and LBS Bina.
“This could be due to the higher price points for the products offered by the bigger developers, in our view,” it said.
CGS-CIMB Research said as of 3Q19, total residential property transactions by value rose 2.1% yoy, according to National Property Information Centre (NAPIC) data.
Transaction value for residential units priced between RM150,000 and RM200,000 increased the most by c.13% yoy, followed by residential units priced between RM250,000 and RM300,000, while residential properties priced above RM1mil recorded a 16% yoy decline in transaction value.
“This proves that the demand for the more affordable properties is greater at the moment. Nonetheless, 3Q19 residential transaction value growth was slower vs. 2Q19’s 9.5% yoy,” it said.
The research house said as of September 2019, property stocks under its coverage recorded 47% yoy core earnings growth.
This was mainly driven by the stronger earnings from ECO WORLD Development, Eco World International, Sime Darby Property and UEM Sunrise, where the bulk of the profits was derived from overseas operations, except for Sime Darby Property.
However, given the downtrend in new property sales since FY17, property counters’ future earnings performance could be negatively impacted.
Sime Darby Property remains its top pick for: (i) its improving new property sales trend, (ii) its solid balance sheet (net gearing of 0.3 times at September 2019); and (iii) its massive land bank to cater to future demand. We're sorry, this article is unavailable at the moment. If you wish to read this article, kindly contact our Customer Service team at 1-300-88-7827. Thank you for your patience - we're bringing you a new and improved experience soon! Subscribe Log In
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