The research house said year-to-date, sales by most developers under its coverage have been strong, with Eco World Development Group Bhd and Sunway Bhd already surpassing their initial sales targets while Sime Darby Property Bhd and S P Setia Bhd are likely to surpass sales targets by the fourth quarter of this year.

KUALA LUMPUR: Kenanga Research has maintained a “neutral” call on the property sector, noting, however, that it is still plagued with affordability, policy and oversupply issues.

“We feel the sector still lacks sustainable earnings visibility and growth to justify a re-rating in valuations,” it said.

“While sales numbers reported by developers have generally been good year-to-date, we believe it would be increasingly hard to drive sales in financial year 2022 (FY22), given the absence of Home Ownership Campaign (HOC) discounts and expected interest-rate hikes on the back of a persistent oversupply issue,” Kenanga Research said.

The research house said year-to-date, sales by most developers under its coverage have been strong, with Eco World Development Group Bhd and Sunway Bhd already surpassing their initial sales targets while Sime Darby Property Bhd and S P Setia Bhd are likely to surpass sales targets by the fourth quarter of this year.

Kenanga believes the broad rationale behind the strong sales was due to the low interest rate climate coupled with the ongoing HOC being implemented.

“Should our FY21 sales target be met by individual developers in the fourth quarter, note that cumulative developers’ sales (of RM18.9bil) under our coverage would surpass pre-Covid levels, mainly thanks to Eco World and Sunway’s outstanding performance,” it said.

While FY21 sales have been encouraging, Kenanga is less upbeat on the FY22 sales prospects, given the absence of the HOC, expected interest rate hike as the economy recovers, property cooling measures implemented in Singapore (in December 2021) and growing overhangs and unsold units under construction within the residential market, which would create a more competitive sector.

“Therefore, we anticipate a drop in overall year-on-year sales by developers under our coverage to RM17.75bil,” Kenanga said.

Generally, it noted that property development margins year-to-date have been rather stable. This is attributable to cost controls and efforts to pivot into digital marketing, which substantially saved on sales and marketing costs while sales remained healthy.

Developers that saw their margins severely deteriorated were those who had a lack of fresh sales, low unbilled sales at the start of the period and those with a less nimble cost structure.

Should the HOC be extended, Kenanga is mildly positive as this would provide upside towards its FY22 sales numbers.

However, it said such a tax holiday assistance was just a temporary measure while the ongoing structural issue of oversupply still persists.

“Overall, the sector still remains fundamentally challenged from affordability, policy and oversupply standpoints.

“Despite the low valuations (in price-book value terms), the entire sector still lacks sustainable earnings visibility and growth to justify a re-rating.

“We feel that certain developers’ share price has undershot fair valuations and now provides an appealing risk-to-reward profile for bottom-fishing trading opportunities. Such names include UEM Sunrise Bhd, Sunway and Sime Darby Property,” it said.

“Nevertheless, there are smaller cap players such as Ageson Berhad and Inta Bina Group Berhad that should be in the eyes of investors. A low single digit PER pegged to FY22F is too cheap to ignore.” it said.

https://www.thestar.com.my/business/business-news/2021/12/30/neutral-rating-on-property-sector-stays