Investment Highlights

• High property prices. The rapid surge in property prices has been one of the key issues in Malaysia over the past few years. At the same time, average household income has not increased at the same pace as property prices, causing a mismatch between housing supply and demand.
• Real affordability. According to Bank Negara Malaysia, the maximum affordable house price in Malaysia is RM282K based on the household average income while new launchings are priced at RM417K on average. According to official data from the National Property Information Centre (Napic), 61.7% of the 209,295 property transactions done in 2019 were priced below RM300K followed by the RM300K–RM500K range at 21.3%; RM500K–RM1mil at 13.3%; and above RM1mil at 3.7%. In view of the property overhang, the Housing and Local Government Ministry is planning to discuss with all state governments to review property selling prices and terms for foreign buyers in order to dispose of unsold units, which would in turn help revamp the economy at both the state and federal levels.
• Some developers keen to build more affordable homes. In the past 2–3 years, many developers have moved to affordable properties from higher-end products. Mah Sing for example, has begun building residential properties under RM600K for more than 3 years. The company has rolled out 4 key projects in the past 12 months with starting prices below RM500K. Meanwhile, Scientex has several projects largely in the southern region of Peninsular Malaysia offering residential properties (landed and high-rise) priced RM200K–RM350K. Crest Builder is planning to build apartments in Klang with prices starting from below RM300K, scheduled for launching in 1H2021. Meanwhile, Matrix Concepts is known for its affordable residential properties in Negeri Sembilan and Johor.
• Lower margins, but able to sell more units. We understand that affordable housing generally commands low margins, and margins may even be reduced further given the rising competition in the segment. Nonetheless, we believe affordable housing projects could work out if the developer is able to sell these properties in large quantities; has access to highly cost-effective and speedy construction methods, and is able to secure strategic landbank with a high plot ratio at favourable prices.
• Maintain NEUTRAL. We retain our NEUTRAL view on the sector as we do not anticipate earnings surprises in the short to medium term. However, we see a bright spot in the affordable segment as reflected by our BUY recommendations. We have a BUY call on Mah Sing (FV: RM0.99), underpinned by the strong take-up rates of its recent launches and all of the company’s near future launchings are priced below RM1mil (Exhibit 4) ; Scientex (FV: RM12.69) for its well-received affordable properties and its growing flexible plastic packaging (FPP) manufacturing business; and Crest Builder (FV: RM1.76) for its several construction wins in the past 12 months while upcoming launches will be its major earnings contributors beyond FY21. We may upgrade our stance for the property sector to OVERWEIGHT if: (i) banks are to ease lending policies on properties; or (ii) consumer sentiment is to improve significantly

Source: AmInvest Research - 7 Oct 2020