We laud the government’s efforts to help the B40 group as Budget 2017 saw a lot more social housing measures. However, it is slightly disappointing for listed developers under our coverage as it failed our and market expectations of easing banking policies to the sector, particularly for general first-time home buyers, and higher EPF Account 2 allocation for first time home buyers. There were some negative surprises including the increase in stamp duty (3% to 4%) for properties priced above RM1m/unit. There was also no infrastructure roll-outs mentioned for Malaysian Vision Valley, which could directly benefit SIME (MP; TP: RM7.90) and MATRIX. Since MATRIX’s total return is now 8% given the recently rally, we downgrade our call to MARKET PERFORM with an unchanged TP of RM2.65 given no near-term catalysts that we can identify. As highlighted in our recent Budget 2017 Preview report, there could be some profit-taking amongst listed developers, especially big-cap ones which had rallied recently on those expectations. The next sentiment booster for the sector is the potential OPR cut (25bps) but it will at best help developers to achieve current sales targets and maintain market share. For now, we maintain NEUTRAL on Developers pending outlook for 2017.

Social housing theme prevails. The measures announced were largely for social housing, which is a big plus for the B40 group. Key social housing highlights include National Blue Ocean Strategy (NBOS) which addresses homes priced no more than RM300k/unit (e.g. PR1MA), to name a few (refer to overleaf table). The government is also introducing urban areas for rental to eligible youths. There were no major easing banking policies towards the sector other than the special ‘stepup’ end financing scheme (provide up to 100% from 90% financing) which will only be for the PR1MA program. This does not significantly benefit developers under our coverage. We deem this as a slightly disappointing Budget for listed developers under our coverage as it is below our and market expectations. As highlighted in our recent sector report (Budget-2016 Preview, 19/10/16), the market was hoping for some easing of banking policies and higher EPF Account 2 allocation for first-time home buyers, while our own expectation was just for the latter measure. We had also expected an extension of the 50% stamp duty exemption for instruments of transfer/housing loan instruments for first-time home buyers (expires Dec 2016). However, what was announced was a 100% exemption but only limited to units of no more than RM300k for first-time home buyers (Jan 2017 to Dec 2018), which again may not benefit listed developers significantly.

The higher stamp duty on instruments of transfer of real estate of more than RM1m from 3% to 4% (by 1-Jan-2018) is a negative surprise, which may deter some buyers and make it tougher for developers to launch such products. In fact, the commercial segment, like shop-lots or sizeable office/retail spaces, may feel the heat. Nonetheless, most developers under our coverage have 70%-80% of their local launch pipelines of products priced below RM1m/unit and are likely to ramp up more of the affordable housing supply to maintain sales levels. In the meantime, this may potentially help developer’s clear inventories (i.e. those with titles) running up to the implementation date of 1-Jan-2018; we believe this would not cause an over surge in sales as demand for these properties have softened significantly. Disappointingly, there was no mention of Malaysian Vision Valley infrastructure roll-outs. Based on our current TP of RM2.65 for MATRIX, total returns is now 8% due to the recent rally and thus, we downgrade our CALL to MARKET PERFORM from OUTPERFORM.

Reiterate NEUTRAL on Developers. Budget 2017 is largely a social housing-theme one, which does not benefit those under our coverage. We had mentioned in our previous report that there could be some profit-taking amongst listed developers, especially big-cap ones which had rallied recently (refer to charts below). We reckon the odds of developers missing targets for this year and guiding for more conservative ones for next year, have just increased due to the absence of ‘goodies’ for private developers this time around amidst an already challenging landscape. However, we will seek further guidance from developers in the coming result season for 2017 outlook, especially as quite a number of developers have proven creative and aggressive in marketing products to sustain their sales this year. The next major sentiment booster is the potential OPR cut (25bps) in the upcoming MPC meeting. Our house view is that while there is room to do so, there is no major urgency. Even if the OPR cut takes place, it will at best help developers to achieve current sales targets and maintain market share.

Source: Kenanga Research - 24 Oct 2016