Investment Highlights

• Our NEUTRAL stance is maintained on the property sector as we are cautious due to:

1. slower 2H2021 recovery as tighter containment measures from June 2021 onwards led to the closure of sales galleries and halted construction activities, delaying the recognition of progress billings;
2. banks remaining cautious in residential property lending as reflected in the low loans applied/approved ratio of 35% compared to 51%–53% during the 2011–2014 uptrend cycle (Exhibit 3); and
3. persistently subdued employment prospects against a backdrop of the prolonged pandemic, restraining consumers’ commitment for the purchase of big-ticket items, particularly, a house.

• 9MFY21 results returned to the black except for UEM Sunrise. Out of the 6 companies under our coverage, 3 were in line with our forecasts whereas the other 3 companies underperformed. Except for UEM Sunrise (UEMS) which registered a sharp 54% YoY drop in core loss, most of the developers have shown increases of more than 28% in their bottom lines amid various movement control orders (MCOs) (Exhibit 2).
  • The core net profit of Sunway, Lagenda Properties (Lagenda) and Mah Sing Group (Mah Sing) was within expectations. As a conglomerate, Sunway showed stronger revenue by more than 17% YoY in all segments with the exception of its property investment division.
    Both Lagenda and Mah Sing delivered impressive earnings growth of more than 30%, supported by higher progress billings and work productivity.
  • S P Setia (Setia), Sime Darby Property (SimeProp) and UEMS missed expectations, dragged lower by :1) weakerthan-expected property investment contributions; and 2) lower-than-expected overseas property performance.
  • QoQ, Sunway and Lagenda posted stronger 3QFY21 earnings growth while Mah Sing’s 3QFY21 earnings stayed relatively flat.
    On the flip side, both Setia and SimeProp reverted into losses from weaker contributions in construction and investment properties. The worst performer, UEMS, incurred a wider loss as intensified lockdowns badly impacted all segments.
• Exceeding full-year sales target. New sales achieved in the 9M2021 rose by 1.5x YoY to RM10.1bil albeit developers attaining at least 50% of their unchanged FY21F sales target vs. 33%–77% in the previous year. New sales remain encouraging, thanks to the ongoing Home Ownership Campaign (HOC) (which accounted for over 48% of local sales), digital marketing initiatives and new launches.

• Different approach on new launches. Developers like Mah Sing, Setia, UEMS are likely to scale down new launches in 2021 by 30% as 9MFY21 new launches accounted only 40%–50% of their initial launch target of RM1.2bil to RM3.8bil.
  However, SimeProp is taking a more aggressive approach to launch the remaining RM1.6bil in 4QFY21 after the company successfully launched projects worth RM2.3bil in gross development value (GDV) in 9MFY21. This accounted for 59% of their initial FY21F target of RM3.9bil.

• Expect pent-up housing sales in 4Q2021 ahead of the expiration of Home Ownership Campaign (HOC). According to our channel checks, housing sales are starting to rebound as home buyers rush for the limited time offers of at least 10% discount during the HOC period before the incentives expire on 31 December 2021.
  However, we do not rule out the possibility that the government may extend such incentives to next year to further stimulate the economic recovery.

• Our top pick for the sector is Sunway given the strong brand recognition established by its highly successful landmark developments and expanding healthcare business, supported by substantive unbilled sales and outstanding order book.

Source: AmInvest Research - 3 Dec 2021