Highlights

Kwasa Land, the master developer of 2,330 acres in Sungai Buloh, announced on Monday 20 Tier-1 developers that had been selected for the Request for Proposal (RFP) for an area identified as Project MX-1 in its 24ha town centre project.

The 20 developers are Bandar Raya Developments Berhad, Bandar Utama City Corporation Sdn Bhd, DRB-HICOM Berhad, Eastern & Oriental Berhad, Gamuda Bhd, Goldis Bhd, Guocoland Malaysia Bhd, IJM Land Bhd, IOI Properties Bhd, I&P Group Sdn Bhd, Mah Sing Group Bhd, Malaysian Resources Corporation Bhd, Perbadanan Kemajuan Negeri Selangor, Putrajaya Holdings Sdn Bhd, SP Setia Bhd, Sunway Bhd, Tropicana Corporation Bhd, UEM Sunrise Bhd, WCT Bhd and YTL Corporation Bhd.

Kwasa Land said the letters of invitation to the 20 prospective tenderers had been delivered, and the closing date for all RFP submissions is 27 May 2014. The whole development within the MX-1 land must be fully completed within 12 years.

While this will be long-term positive for the sector and the successful winner as this is a massive development, the exact identities of specific beneficiaries are yet to be decided.

For 2014, we believe near term impact will be limited, as 1H will still be muted by the numerous and recent cooling measures. We expect the sector to stage a recovery in 2H, and re-iterate our neutral weighting.

Catalysts

Infrastructure related catalysts; inflation hedging virtues of property; sustainable demand; high affordability ratio; declining NPL ratio for property loans.

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

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

IOI Properties (BUY, TP RM3.85): We are bullish on IOIP as we believe there is good upside from its exposure to Singapore and China given that the listing is at or near the bottom of the cycle, in addition to its strong margins of circa 60% and discount valuation to large cap peers. Its low net gearing of less than 5% means it will be highly resilient to any slowdown in the property cycle.

Source: Hong Leong Investment Bank Research - 4 Mar 2014