Property developers generally delivered a mixed bag of results for the 4QCY13 reporting season. Meanwhile, the property landscape remained relatively quiet in terms of new launches and landbanking activities due to recent tightening measures. However, it appears that developers under our coverage are agile as they tailored most of their launches towards the affordable/mass housing market where demand tends to be more genuine in terms of buyers profiles, hence resilient against the tightening measures. We expect a stronger 2H14, especially on the back pre-GST demand and thus, we expect sentiment to recover. Developers’ valuations are currently trading at close to or at trough valuations, being bombed out by the slew of bad news, implying that most negatives have already been priced in. Hence, the high opportunities for sharp rebounds. We prefer Klang Valley based laggards like MAHSING (OP; TP RM2.56), IJMLAND (OP; TP RM3.15) and SUNWAY (OP; TP RM3.08) which have YTD returns of less than 7% to negative returns. We also continue to like pure affordable housing developers and those with industrial exposure like MATRIX (OP; TP RM4.80) and HUAYANG (OP; TP RM2.33) which also provide decent dividend yields. Maintain OVERWEIGHT on Property.

Mixed bag of results. In terms of earnings, (i) companies that came in above our or market expectations were IJMLAND, SUNWAY, CRESNDO, which beat either market consensus or our expectations largely due to better-than-expected billings and margins expansions, (ii) UEMS, IOIPG, HUAYANG missed expectations due to timing of launches, which affected billings, weaknesses in non property divisions and lumpy one-off expenses, and (iii) those that came in within expectations were UOADEV, MAHSING, SPSETIA and MATRIX. In terms of sales, most developers met their targets, save for: (i) IJMLAND, SPSETIA, HUAYANG and MATRIX which either beat or are proportionately ahead of their full year sales targets thanks to their launches, which were favourably skewed towards affordable housing (and higher overseas sales for IJMLAND and SPSETIA), (ii) IOIPG, which came in below. There were no significant adjustments save for IJMLAND where earnings were brought forward slightly due to earlier estimates being too conservative while we reduced SPSETIA and IOIPG earnings by 10% and 19%, respectively, due to timing of launches and reduction in future sales estimates. CALLs/TPs for the stocks under our coverage were relatively kept intact this time around.

Last few months have been quiet. Landbanking has been relatively quiet at the moment although we gather that land prices have not eased but is levelling. New launches have also been relatively quieter over the last three months, save for some affordable housing offerings (e.g. Southville @ Bangi, Southview @ Federal Highway). We note that developers have been holding back launches while buyers adopt a ‘waitand-see’ stance. Notably, unbilled sales are extremely strong at 1 to 1.5 years (based on forward revenue).

Expecting a better 2HCY14. Going forward, most developers are estimating flat to 10% YoY growth in sales due to the more challenging landscape. Most developers believe that 2HCY14 will see a strong pickup in demand due to pre-GST buying pressure and pent-up demand given that new launches have been lacking over the last few months. New launches will likely start to surface beyond Apr-14 while most developers have lined up a lot of affordable housing launches (RM800k/unit and below) for the year. However, note that in the next result season, we do expect to see softer sales as 1QCY14 will see full impact of the Budget-2014 measures. Nonetheless, by that time, new launches would have surfaced and since it is skewed towards affordable housings, take-up rates of the new launches in 2QCY14 would also start to show positive indications. We also expect landbanking activities for affordable housing to pick up momentum in the next 6-9 months.

Maintain OVERWEIGHT on PROPERTY. Developers’ valuations are trading at close to or at trough valuations, being bombed out by the slew of bad news, implying most negatives have already been priced in. Hence, the high opportunities for sharp rebounds. We think sentiments will recover as developers are mostly skewed towards affordable housing while demand is expected to recover in 2H14. Most of the large cap developers (>RM1b) under our coverage have YTD returns of less than 7% to negative returns, save for IOIPG and MATRIX. We prefer Klang Valley based laggards like MAHSING, IJMLAND and SUNWAY, which have YTD returns of less than 7% to negative returns. We also continue to like pure affordable housing developers and those with industrial exposure like MATRIX and HUAYANG, which also provide decent dividend yields. We believe that Johor plays like UEMS and CRESNDO may be relatively subdued for now due to concerns over oversupply issues arising from high supply from foreign developers, although valuations are very attractive at current levels. Our recommendations are as follows: UEMS (OP; TP RM2.60), IOIPG (OP; TP: RM2.68), MAHSING (OP; TP: RM2.56), SUNWAY (OP; TP RM3.08), IJMLAND (OP; TP RM3.15), UOADEV (OP; TP RM2.10), CRESNDO (OP; TP RM4.00), HUAYANG (OP; TP RM2.33), MATRIX (OP; TP RM4.80), SPSETIA (MP; TP RM3.03).

Source: Kenanga