Investment Highlights

• 4QCY20 results largely below expectations. The results of the companies under our coverage are largely below expectations. Out of the 6 companies, 4 came in below expectations while 2 were in line (Exhibit 2).
  • Property developers IOI Properties Group (IOIPG) and Mah Sing are the only ones whose profit came in within expectations while the results of Crest Builder, MRCB, SimeProp and S P Setia were lower than expected.
     
  • IOIPG’s property development segment recorded a 1HFY21 core net profit of RM322.6mil (-11.2% YoY), mainly due to stronger contribution from projects in Malaysia and China. All in all, the property development division chalked up new sales of RM916mil vs. YoY’s RM875.5mil whereby 52% were derived from Malaysia and 46% from China while its unbilled sales stood at RM696.8mil as compared to QoQ’s RM607mil.
    The construction progress of IOI Palm City Mall remains on schedule with business expected to commence by 3QCY2021. Mah Sing’s FY20 results met expectation but its profit declined by 25.1% YoY mainly due to impact of the movement control order (MCO) on its 1HFY20 earnings.
     
  • Meanwhile, all companies posted lower earnings or made losses in 4QCY20 (Exhibit 2) mainly due to slower recognition as a result of the MCO. Mah Sing, S P Setia and SimeProp still have many projects that are in their early stages, hence revenue recognition in FY20 was lower compared with the previous year’s. MRCB reported an FY20 core net loss of RM0.8mil vs. a net profit of RM23.7mil YoY attributed to deferments in construction works and progress billings.
     
  • SP Setia and SimeProp registered FY20 net losses of RM453.1mil and RM478mil respectively mainly on impairment of inventories in the Battersea project. Stripping the exceptional items, S P Setia and SimeProp’s FY20 core net earnings came in at RM22.8mil and RM141.7mil respectively.
     
• New sales generally lower YoY. Developers generally reported lower new sales YoY, by about 24.5% (Exhibit 2), due to the lacklustre market and the impact of the MCO and Covid-19 pandemic. Hence, we do not expect to see surprises in earnings over the next 12–18 months. Developers are more aggressive in clearing unsold units by offering discounts with the inventory level on a declining trend. We believe that this is a positive move to realise cash flow.

• Consumer sentiment still weak. Most developers remain cautious, and are still assessing the economic situation before deciding to continue or defer future launches. We believe that consumer sentiment shall remain weak for the time being with spending mainly focused on necessities while big-ticket items such as properties will take a back seat for now.

• Maintain NEUTRAL. We retain our NEUTRAL view on the sector as we do not anticipate earnings surprises in the short to medium term. We have BUY calls on: (1) IOIPG (fair value RM1.86) which is banking on the strong contribution from its property development projects in China; and (2) Mah Sing (FV RM1.28), underpinned by the strong take-up rates of its recent launches and its upcoming rubber glove business.

We may upgrade our 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 - 8 Mar 2021