Investment Highlights

• 3QCY19 results largely in line. The results of the companies under our coverage are largely in line. Out of the 13 companies under our coverage, 9 came in within expectations while 4 were below expectations (Exhibit 2). For property developers, IOI Properties Group (IOIPG), Mah Sing, Sime Darby Property (SimeProp), S P Setia, Sunway and UEM Sunrise came in within expectations while the results of Eco World Development Group (EcoWorld), MRCB, Enra, and Titijaya Land (Titijaya) were lower than expected. IOIPG registered higher 1QFY3/20 earnings, mainly contributed by development projects in China, and a higher share of profit in joint ventures mainly arising from the sale of South Beach Residences in Singapore. SimeProp 9MFY19 core net profit surges by 152.5% mainly on higher contributions from Bandar Bukit Raja, Denai Alam, Nilai Impian/Utama townships and Cantara Residences in Ara Damansara. Mah Sing (-31.6% YoY), S P Setia (-12.5) and Titijaya (-75.1% YoY) registered lower quarterly earnings YoY as their projects are still at early stages. However, we expect them to recognise stronger revenue in the coming quarters once their projects pass the initial stages of construction. Meanwhile, MRCB’s 9MFY19’s earnings plunged by 76.8% YoY mainly due to lower revenue recognised during the period as a result of the deferment and retiming of income recognition from the LRT3 project.

• New sales YoY generally lower. Developers generally reported lower new sales YoY. Hence, we do not expect to see surprises in earnings for the next 12–18 months. Developers are more aggressive in clearing unsold units by offering discounts whereby inventory level is on a declining trend. We believe this is a positive move to realise cash flow.

• REITs still resilient. For REITs, Pavilion REIT (PREIT) Sunway REIT (SREIT) and YTL Hospitality REIT (YTLREIT) all came in within expectations. PREIT registered lower earnings mainly due higher finance costs and operating expenses. We expect the outlook for retail properties, especially shopping malls, to remain stable in the short to medium term. This is demonstrated by PREIT and SREIT whereby both have high occupancy rates in their shopping malls.

• Maintain NEUTRAL on the sector. We maintain our NEUTRAL view on the sector as we do not anticipate earnings surprises in the short to medium term. Our top picks for the sector are: (1) Sunway Bhd (BUY, FV: RM1.97) given that its local and overseas property launches have been generally well received due to good locations, and its diversified income base; and (2) IOIPG (BUY, FV: RM1.73) which is banking on a strong contribution from its property development projects, particularly in China and Singapore.
  
  We may upgrade our NEUTRAL stance for the property sector to OVERWEIGHT if: (1) banks are to ease lending policies on properties; or (2) consumer sentiment is to improve significantly.

Source: AmInvest Research - 6 Dec 2019