In the recent results season, companies under coverage reported mixed results in comparison to ours and consensus expectations. As expected, developers have revised both sales and GDV launch targets downwards amidst potential risks caused by Covid-19, with some even up to a -50% cut. It was reported that the Housing and Local Government Ministry is formulating a vacancy tax to reduce the overhang issue in the country. We maintain our NEUTRAL stance on the sector due to the overall economic impact of Covid -19 leading to some uncertainties in near-term operations. Our top picks remain with Sunway (TP: RM1.95) and Matrix (TP: RM2.11).

1H20 recap. In the recent results season, companies under coverage reported mixed results in comparison to ours and consensus expectations. Notably, IOIPG ended its FY20 above ours and consensus expectations (116%) attributed to a pent up demand in China post-lockdown. 1H20 saw minimal land-banking activities under our coverage compared to 2019, which suggests developers have been rather prudent given the overall economic impact of Covid-19. Our ground-check shows that developers have been approached by an increasing number of landowners willing to sell their land at a bargain. Nonetheless, developers remain cautious as they need to take into account the turnover period of these lands as most of the developers under coverage already have large amounts land to sustain development over the long term.

2020 sales and launch target revisions. As expected, developers have revised both sales and GDV launch targets downwards amidst potential risks caused by Covid-19, with some even up to a -50% cut. Despite the current market conditions, some received relatively healthy bookings during the MCO and post-MCO period which could be attributed to campaigns carried out by the developers which provide attractive booking fees. As such, conversion of bookings to sales will be a key focus for most developers. With regards to near-term launches, the situation remains rather fluid as most developers are still monitoring the market’s appetite.

Vacancy tax. It was reported that the Housing and Local Government Ministry is formulating a tax that could be imposed on developers failing to sell their properties (largely aimed towards high-end properties), to reduce the overhang issue in the country. Nonetheless, the proposed tax is still being studied with the decision and details yet to be finalised. If implemented, we believe that it would likely only apply towards newer launches (as opposed to pre-existing inventory) which should not be too much of a problem given that developers have been more selective with their product launches recently in addition to providing more competitive prices to ensure a healthy take-up.

Forecast. Unchanged.

We maintain our NEUTRAL stance on the sector due to the overall economic impact of Covid-19 leading to some uncertainties in near-term operations. However, the trough valuations (coverage universe P/B at 0.5x or more than -2SD below 5-year mean) should lend some support on the downside. For our top picks, we continue to like Sunway (BUY, TP: RM1.95) as an underappreciated property-construction conglomerate with mature investment properties, growing trading and quarry division and potential monetisation of healthcare business. It was recently reported that Sunway is looking to divest a stake of 20%-25% in its healthcare unit that could fetch at least USD250m, which implies the healthcare unit to be potentially valued at RM5.2bn, bringing our SOP value to RM2.88. We also like Matrix (BUY, TP: RM2.11) as it rides on the affordable housing theme within its successful townships with cheap land cost and sustained property sales. Its dividend yield of over 6% remains one of the highest in the sector.

Source: Hong Leong Investment Bank Research - 15 Sept 2020