Highlights

• 1H results broadly in-line… with half of our stock coverage (4 out of 8) came in within expectations (3 below; 1 above). Although reported earnings were hardly exciting, stronger 2H earnings have been guided by most companies.

• Achievable sales target… 1HCY17 recorded sales are on course to meet CY17 target (flat yoy) given expectation of a stronger 2H. Notably, there has been no downward revision of sales target by companies under our coverage. In CY16, a few downward revisions of sales target were made due to soft sentiment.

• More landbanking exercises… are expected going forward. YTD, Sunway and Mah Sing are among the more aggressive parties with five and four lands acquisitions respectively. Matrix continued to expand its landbanks in Negeri Sembilan while Ibraco has recently announced a land deal in Klang Valley. Besides, SP Setia successfully tendered for a land in Singapore back in April.

• Rebound in leading loan indicator… YTD, monthly loan applications and approvals for residential properties were up 16.8% and 18.2% yoy, bucking the declining trend in 2016. This indicates buyers’ interest has improved despite the low approval rate due to stringent bank lending policy.

• …supported by a stronger economy. The improving economic environment should lend support to a gradual recovery in the property sector. In this regard, we can expect a return of interest in the sector given a rising appetite on domestic growth upcycle theme.

• Sector valuation at -1SD below average… where it is currently trading at 48% discount to RNAV and 0.96x P/B. Valuation is still relatively cheap and we expect the discount to narrow when the property sector begins to gain more interest amid signs of bottoming-up.

Rating

NEUTRAL ( ↔ )

• We maintain NEUTRAL stance on the sector due to absence of near-term catalyst despite bottoming signs. However, with the improving market conditions led by favourable economic indicators, we can expect a mild recovery of interest in the property sector.

Top Picks

• Sunway (BUY, TP: RM5.16): A re-rating catalyst given its diversified income stream and declassification from property sector. We continue to advocate it as a deep value stock with mature investment properties and the underappreciated trading and healthcare segments, which are undergoing massive expansions. Potential higher dividend of >3% is another investment merit.

• SP Setia (BUY, TP: RM4.00): We remain positive on the imminent synergistic acquisition of I&P Group given its attractive price and RNAV accretive as well as boosting of overall landbank to 9.5k acres (3rd largest). Consistent dividend yield of 5% is also a positive point.

Source: Hong Leong Investment Bank Research - 18 Sept 2017