• Property stocks under our coverage exhibited result in line with our forecast during the quarter under review.

• We remain cautiously optimistic with the sector’s long-term outlook despite ongoing positive sentiment surrounding pending infrastructure projects such as HSR and MRT3.

• We maintain a NEUTRAL stance on the Property sector due to the persistently challenging operating conditions. We are wary with higher interest rate and inflationary pressure which could adversely affect consumer sentiment.

Strong Sales Boost Earnings Performance

The recent 2Q2023 results of 2 companies under our coverage were largely in line with our expectation. Both stocks delivered YoY growth on their topline and bottomline albeit at slower rate. The luxury affordable housing developer, Mahsing, maintained sales performance on its M series project, which is a key driver contributing to the company's earnings. The most recent project, M Nova, which marks Mahsing's third development in Kepong, achieved an impressive 90% take-up rate for Tower A within a single weekend. This success underscores Mahsing's commitment to delivering products that align with market demand, featuring competitive pricing, functional layouts, thoughtfully designed amenities, and strategically advantageous locations. Meanwhile, Simeprop’s 1H23 core net profit grew by 18% YoY in tandem with a 25% YoY increase in revenue. The growth can be attributed to strong demand from both the industrial and residential product segments. Notably, the industrial segment has demonstrated a robust growth trajectory, with its sales contribution increasing to 40% of Simeprop’s total sales in 1H2023 as compared to 25% for FY2022.

Active New Launches and Land Acquisition in 2H23

We hold a cautiously optimistic outlook for the long-term business environment, buoyed by the enduring positive sentiment surrounding pending infrastructure project announcements such as HSR and MRT3. In the case of property developers, we expect that ongoing land acquisitions, particularly in proximity to infrastructure projects, may become a primary focus for developers, considering that the process often takes more than a year to complete and may not contribute to earning visibility in the near term. The industrial sector in the Klang Valley is experiencing a significant uptick in activity, driven by increased demand from end-users, manufacturers, and investors. This expansion can be attributed to the current geopolitical landscape and proactive government efforts to boost economic development.

Neutral on the Sector

We have a NEUTRAL recommendation on the sector due to ongoing macroeconomic uncertainty amidst tough operating environment (i.e., increasing interest rates and inflation pressure) which may dampen consumer sentiment and subsequently property sales. However, we are positive on Mahsing and Simeprop due to: i) strong 2023 new launches in the pipeline ii) strong unbilled sales and iii) aggressive land bank replenishment. Maintain a BUY call on Mahsing (TP: 0.85) and SimeProp (TP: 0.86).

Source: BIMB Securities Research - 7 Sept 2023