Highlights

Headwinds galore… We believe that the current climate offers far more numerous sector headwinds as compared to catalysts, which include:

Waning wealth effect… Weak CPO prices (Figure #2) and export numbers (Figure #3) have greatly weakened the wealth effect mentality for small holders and SME business owners.

Cloudy economic growth for 2014… The street is forecasting a modest improvement in GDP growth from 5.0% this year to 5.3% next year, which is unlikely to spur excitement and buying optimism in the property market.

Subdued sentiment… With these prevalent headwinds in mind, we expect a spillover effect into buying sentiment, which could make it challenging for developers to achieve their ambitious sales targets for 2013.

Risk of BNM raising interest rates in 2014… With OPR at 3.0%, they have very little scope to reduce rates in the face of sustained GDP growth. We see a rate hike as being more likely to occur, although not likely to be this year.

Catalysts

Infrastructure related catalysts… There are some longdated, infrastructure-related sector catalysts such as Penang Second Bridge in Sep 2013, Iskandar Malaysia, MRT and high speed rail, but the immediate effect will be limited.

Supporting factors include still-ample systemic liquidity and healthy fundamentals - sales and earnings should still lend support to valuations.

Risks

Rising NPL ratios and loss of holding power; margin erosion due to raw material price spikes and/or lower selling prices; slowdown in sales / cut back in launches.

Rating

NEUTRAL

Given our subdued outlook for the sector in the near term, we opine that it merits a neutral rating at best.

Accordingly, we trim our TP for UEM Sunrise (increase discount to RNAV from 0% to 20%, TP RM3.23); KSL (increase discount to RNAV from 20% to 40%, TP RM2.04); Mah Sing (increase discount to RNAV from 20% to 45%, TP RM2.38); and YNH (increase discount to RNAV from 50% to 55%, TP RM1.99).

Positives: Asset reflation theme remains intact over the longer term; increased opportunities within the affordable/mass market segment.

Negatives: Slowdown in demand for mid/high end segment and economic growth; tighter lending polices by banks.

Top Picks

Matrix: Share price has proven resilient recently, due to strong optimism over its township earnings and high DY (10% for FY13, with balance 6.2% DY unpaid). TP: RM2.77.

Source:Hong Leong Investment Bank Research- 16 Jul 2013