All-in, Budget 2015 was within our and market expectations. We deem this budget as a non-event Budget for the property sector which is inline with our NEUTRAL call on the sector given that there is no further cooling measures like further RPGT hike. Budget 2015’s emphasis was more towards increasing home affordability for first home buyers which was largely anticipated.

We had anticipated that the government may; (i) bring back DIBS for homes below RM400k/unit for first home buyers. If implemented, HUAYANG, MATRIX, CRESNDO and KSL are beneficiaries although they may have to downsize their products further which may be challenging in the residential space due to the fixed density ratios/demand for liveable space. This was not proposed but instead, the government proposed a Youth Housing Scheme to aid up to 20,000 first home buyers across Malaysia (refer overleaf for parameters), (ii) the government also did not introduce the ‘zero rated’ category under GST for affordable housings priced below RM400k/unit. If they had done so, we can imagine it would be an administrative nightmare for developers, (iii) there was no proposal to forego stamp duty on property after the implementation of GST, as proposed by REHDA. This was within expectations as other countries with GST do not practice this.

A week before Budget 2015 announcement, the market underwent a heavy sell-down due to weak global sentiment; consequently, property stocks either remained flattish (e.g. UOADEV) or sharply corrected by up to 17% (average: 5.9%) over the last week. We had also issued our Property Sector Report (4Q14 strategy and Budget-2015 @ 3/10/14), reiterating our NEUTRAL call as we expected Budget 2015 to be largely NEUTRAL.

Post Budget-2015 announcement, we expect the following;

(i) Stock market: Heavily sold down stocks will likely rebound, particularly more defensive type developers which offers yields and operates largely in the affordable segment. We continue to like MATRIX, HUAYANG and CRESNDO as affordable housing players with yield angles. We continue to advocate year-end plays for major laggards like IOIPG and MAHSING. Our TOP PICK remains KSL, being an affordable player with goodies in the pipeline including a potential dividend policy and the recently announced proposed IDRP and 1-for-1 bonus issue, while it is trading at very compelling valuations of 5x-4x FY14-15E core PER.

(ii) Physical market: Developers will likely begin aggressive launches, although they would have to be careful as actual SPA take-up rates may take long to materialize. As highlighted in our previous report, a ‘pre-GST demand rally’ in 4Q14 and 1Q15 may not be as strong as we had hoped because it really depends on whether banking liquidity to the sector has loosen up. Thus far, the direction does not appear to have changed. So we do expect bookings to be more aggressive while it will take much longer to convert to SPA sales. We will be assessing the situation closely.

Reiterate NEUTRAL call on the sector. The market had expected it to be largely NEUTRAL and since Budget 2015 was very much within expectations, we believe rebounds to beyond pre-sell down levels in the last week may not be very convincing or sustainable, particularly when the FBMKLPRP’s YTD gains are still very compelling at 9.6% vs. the FBMKLCI’s negative returns of 3.1% (refer overleaf for property stocks YTD gains). Also, we still need more confirmation from the physical market and banks regarding a convincing ‘pre-GST demand rally’. We make no changes to our CALLs/TPs, which are as follow;

(i) OUTPERFORM: IOIPG (TP: RM3.10), SUNWAY (TP: RM3.87), MAHSING (TP: RM3.05), MATRIX (TP: RM3.48), HUAYANG (TP: RM2.60), CRESNDO (TP: RM2.95).

(ii) ACCEPT OFFER: IJMLAND (TP: RM3.55)

(iii) MARKET PERFORM: UEMS (TP: RM1.93), SPSETIA (TP: RM3.30), UOADEV (TP: RM2.00), TROP (TP: RM1.28) (iv) Trading BUY: GLOMAC (FV: RM1.27), GOB (FV: RM1.23), GUOCO (FV: RM2.95), IWCITY (FV: RM2.60), KSL (FV: RM6.63), MKLAND (FV: RM0.64), SBCCORP (FV: RM3.24), TTJY (FV: RM2.95-RM3.32)

Source: Kenanga