AmInvest Research Reports
PROPERTY & REIT - Another Bumpy Year Ahead
AmInvest
Publish date: Mon, 30 Dec 2019, 09:49 AM
AmInvest
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All materials published here are prepared by AmInvest. For latest offers on AmInvest trading products and news, please refer to: https://www.aminvest.com/eng/Pages/home.aspx
Tel: +603 2036 1800 / +603 2032 2888
Fax: +603 2031 5210
Email: enquiries@aminvest.com
Office Hours
Monday to Thursday: 8:45am – 5:45pm
Friday: 8:45am – 5:00pm
(GMT +08:00 Malaysia)
Investment Highlights
Maintain NEUTRAL. We are maintaining our NEUTRAL view on the property sector as the outlook remains challenging in the next 12 months. While most developers have achieved their new sales target, the numbers were lower YoY whereby 9MCY19 sales were lower by 10% to 15% as compared with the previous year. We do not expect surprises in earnings for the next 12 months.
However, there is still some space for growth. We expect certain segments to outperform in the current market condition. We believe developers with overseas exposures will do better in the medium term, especially in China and Singapore. Sunway Bhd (BUY, FV: RM2.07) and IOI Properties (IOIPG) (BUY, FV: RM1.73) are well positioned in this area and their property launches have been generally well received both locally and overseas.
Landbanking activities in 2020. Similar to 2019, we expect there will be some landbanking activities, especially in small pocket of lands which have good locations such as close proximity to KL city centre, major expressways and the MRT/LRT. We believe high-rise development around these areas provide good connectivity hence convenience for home buyers. For example, Sunway and Mah Sing have done their landbanking in 2019 applying such strategy.
Affordable segment remains the key focus. We expect the affordable segment to perform well, driven by resilient demand, especially from young professionals and families due to continued urbanisation. This is well reflected by the move by the majority of local property developers to focus on this segment.
Interest from foreign buyers. Malaysian properties have been getting interest from Hong Kong residents due to protests in the region which began about six months ago. Malaysia is a good choice for Hong Kong people due to affordability, the Chinese/ Cantonese culture, and English proficiency. Moreover, the lowering the foreign ownership threshold for condominiums and apartments to RM600K will increase the demand for local properties among foreigners.
Single-digit earnings growth. Companies such as Mah Sing, S P Setia, MRCB, Ecoworld and Titijaya Land have many projects still in their early stages, hence we do not expect strong revenue recognition in the next 12 months. We expect earnings to grow by a mere 4%–5% for FY20 given the current sales figure, progress of construction and timing of revenue recognition, translating into a PER of 20x.
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 (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 expect REITs to remain stable in the short to medium term, especially shopping malls. Pavilion REIT (HOLD, FV: RM1.93) and Sunway REIT (BUY, FV: RM2.16) are still enjoying high occupancy rates in their shopping malls. We believe the high occupancy rates are also due to strong management and brand names of the REITs, in addition to shopping complexes becoming one-stop centres for the Malaysian lifestyle providing F&B and entertainment options. We like YTL REIT (BUY, FV: RM1.56) due to it being a hospitality REIT with exposure in the Australian market that continues to grow and at the same time has master leases on properties in both Malaysia and Japan that provide steady incomes.
We may upgrade the property sector to OVERWEIGHT if: (1) the banks are to ease lending policies on properties; or (2) consumer sentiment is to improve significantly.
We may downgrade our NEUTRAL stance for the property sector to UNDERWEIGHT if: (1) the banks are to tighten further their lending policies on properties; or (2) consumer sentiment is to deteriorate further.
Maintain NEUTRAL. We are maintaining our NEUTRAL view on the property sector as the outlook remains challenging in the next 12 months. While most developers have achieved their new sales target, the numbers were lower YoY whereby 9MCY19 sales were lower by 10% to 15% as compared with the previous year. We do not expect surprises in earnings for the next 12 months.
However, there is still some space for growth. We expect certain segments to outperform in the current market condition. We believe developers with overseas exposures will do better in the medium term, especially in China and Singapore. Sunway Bhd (BUY, FV: RM2.07) and IOI Properties (IOIPG) (BUY, FV: RM1.73) are well positioned in this area and their property launches have been generally well received both locally and overseas.
Landbanking activities in 2020. Similar to 2019, we expect there will be some landbanking activities, especially in small pocket of lands which have good locations such as close proximity to KL city centre, major expressways and the MRT/LRT. We believe high-rise development around these areas provide good connectivity hence convenience for home buyers. For example, Sunway and Mah Sing have done their landbanking in 2019 applying such strategy.
Affordable segment remains the key focus. We expect the affordable segment to perform well, driven by resilient demand, especially from young professionals and families due to continued urbanisation. This is well reflected by the move by the majority of local property developers to focus on this segment.
Interest from foreign buyers. Malaysian properties have been getting interest from Hong Kong residents due to protests in the region which began about six months ago. Malaysia is a good choice for Hong Kong people due to affordability, the Chinese/ Cantonese culture, and English proficiency. Moreover, the lowering the foreign ownership threshold for condominiums and apartments to RM600K will increase the demand for local properties among foreigners.
Single-digit earnings growth. Companies such as Mah Sing, S P Setia, MRCB, Ecoworld and Titijaya Land have many projects still in their early stages, hence we do not expect strong revenue recognition in the next 12 months. We expect earnings to grow by a mere 4%–5% for FY20 given the current sales figure, progress of construction and timing of revenue recognition, translating into a PER of 20x.
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 (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 expect REITs to remain stable in the short to medium term, especially shopping malls. Pavilion REIT (HOLD, FV: RM1.93) and Sunway REIT (BUY, FV: RM2.16) are still enjoying high occupancy rates in their shopping malls. We believe the high occupancy rates are also due to strong management and brand names of the REITs, in addition to shopping complexes becoming one-stop centres for the Malaysian lifestyle providing F&B and entertainment options. We like YTL REIT (BUY, FV: RM1.56) due to it being a hospitality REIT with exposure in the Australian market that continues to grow and at the same time has master leases on properties in both Malaysia and Japan that provide steady incomes.
We may upgrade the property sector to OVERWEIGHT if: (1) the banks are to ease lending policies on properties; or (2) consumer sentiment is to improve significantly.
We may downgrade our NEUTRAL stance for the property sector to UNDERWEIGHT if: (1) the banks are to tighten further their lending policies on properties; or (2) consumer sentiment is to deteriorate further.
Source: AmInvest Research - 30 Dec 2019
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