• During recently concluded result season, out of three companies under our coverage, two companies met our expectations, while one came above our estimate.

• We remain cautiously optimistic on the sector’s outlook due to the anticipation of potential negative impacts from the increase in tax services and the impending rationalisation of subsidies, which could dampen consumer demand 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 have a BUY recommendation for Mahsing (TP: 1.11) and SimeProp (TP: 0.89), and a HOLD call for Matrix (TP:1.81).

Strong Sales Momentum in FY2023

The recent 4Q23 results season for companies under our coverage was largely in line, with only one exceeding expectations (i.e. Simeprop). Mahsing emerged as the standout performer, witnessing a remarkable 29.4% QoQ and 38.4% YoY surge in net profit. This growth is attributed to heightened property sales and the gradual recognition of revenue as construction progresses. These achievements are further supported by the remarkable demand for M series properties, which offer a unique blend of affordability, quality, and lifestyle amenities. Meanwhile, Simeprop experienced slightly positive growth in net profit QoQ (+8% QoQ, -2.6% YoY), after excluding the impact of fair value losses on investment properties. Conversely, Matrix recorded the weakest performance with core net profit declining by -10.6% QoQ and +5.3% YoY, mainly due to lower launches and product mix recognition. Overall, 4Q23 sector earnings for the three covered stocks grew by +8% QoQ and +6% YoY, primarily driven by ongoing multiyear high property sales and improving profit margins.

Gearing up New Launches and Sales Recognition in 1H24

We are cautiously optimistic on the long-term business landscape, driven by positive sentiment surrounding upcoming infrastructure projects like HSR, MRT3, and LRT3. While property developers are going to prioritize land acquisitions near infrastructure developments, it's important to note that such acquisitions process can be lengthy and may not offer immediate earning visibility. In the Klang Valley, there's a notable surge in industrial sector activity, fueled by heightened demand from end-users, manufacturers, and investors, thanks to prevailing geopolitical dynamics and proactive government efforts aimed at stimulating economic growth. Additionally, most developers may continue to develop more affordable homes as demand remains intact and is supported by various incentives provided by the government. With substantial unbilled sales reported in 2023, totaling RM3.6bn for Simeprop, RM2.33bn for Mahsing, and RM1.1bn for Matrix, we anticipate a steady recognition of revenue as construction progresses throughout 1H24.

Neutral on the Sector

We maintain a NEUTRAL stance on the sector due to ongoing macroeconomic uncertainty amid a challenging operating environment. Factors such as the rise in service tax, impending full subsidies rationalization, and inflationary pressures may dampen consumer sentiment, consequently impacting property sales. Still bullish on Mahsing and Simeprop due to: i) strong 2024 new launches, ii) robust unbilled sales, and iii) progressive revenue recognition from ongoing construction. We recommend BUY for Mahsing (TP: 1.11) and SimeProp (TP: 0.89), and HOLD for Matrix (TP:1.81).

Source: BIMB Securities Research - 7 Mar 2024