Highlights

Over the weekend, the Edge Weekly published a special issue on IDR. Our key takeaways were the transportation catalysts and the sustainability of project sales in IDR.

High speed rail (HSR). Malaysia has completed the baseline alignment, and the next step will be to discuss with Singapore. The HSR is expected to cut through Nusajaya, which would be good for UEMS. To recap, the HSR is expected to cut traveling time between the two cities to 90 minutes.

Rapid transit system. This system would enhance connectivity between IDR and Singapore, via faster clearance of immigration and integration with the Thomson Line at the Woodlands station. There is a one year time frame for the authorities to make an announcement.

New CIQ and ferry terminal at Puteri Harbour. The ferry terminal began operations in May, offering services to Indonesia and Singapore.

Oversupply issues. Knight Frank does not rule out a glut in the market, which would lead to price war. We opine this remains the biggest concern for IDR (Fig 1).

Foreign uptake will be critical. Going forward, we expect foreign uptake to be the wildcard in IDR. Recent examples include: (1) Mah Sing's Meridin@Medini was mainly taken up by foreign purchasers at RM750 psf; (2) Foreign sales for WCT’s 1medini was 40%, with pricing ranging between RM650-680 psf; and (3) 35% of Tropicana's Tropez residences buyers were Singaporean.

Singaporean angle grows stale? MAS has issued the total debt servicing ratio ruling, whereby total debt obligation cannot exceed 60% of total income, which would affect buyers with high outstanding loans for their subsequent property purchases. Combined with high prices in IDR (a recent launch in Puteri Harbour was pegged at RM1500 psf), Singaporean buyers may start to curtail their buying activities.

Financial Impact

Connectivity theme – long term positive. Supply/demand situation – uncertain.

Pros/Cons

While the connectivity theme would be positive for UEMS, Mah Sing and KSL, the timing remains uncertain

Risks

Slower than expected economic growth; rise in NPL ratios due to loss of holding power by Malaysian home buyers.

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 policies by banks.

Top Picks

Matrix (BUY, TP RM2.84).

Source: Hong Leong Investment Bank Research - 17 Sep 2013