Maintain NEUTRAL on Developers. The sector rebounded from the lows in 4Q18 to chart a +5.5% gain YTD* handily outperforming the FBMKLCI (+0.8% YTD). Emerging from an uneventful 1QCY19, were early signs of easing interest rates and news that the House Ownership Campaign was to be extended by another 6 months to Dec-19. For the developers under our coverage, recommendations were left unchanged except for HUAYANG which we downgraded to UNDERPERFORM following its recent share price rally. In terms of earnings, we reduced ECOWLD’s FY19-20E earnings by 11%-15% following recently released results, while for other developers, FY19-20E earnings were reduced within a 1%-12% ran have e as we factored in higher financing cost to capture for the adoption of IAS 23. Post earnings review, our universe’s total sales/earnings trajectories are generally unexciting at -5%/+5% YoY in FY19/20E and +2%/+6% YoY in FY20/21E, with average RNAV/SoP discount tapered to 64.3% from last quarter’s 64.6% (- 1.25SD).

Property a Year-to-Date Outperformer. Emerging from an uneventful 1QCY19, the KLPRP index rose to outperform KLCI, charting +5.5% return YTD vs. the FBMKLCI (+0.8% YTD). The outperformance was partly technical, as it rebounded from the lows back in Oct/Nov-2018, and potentially encouraging effects of House Ownership Campaign, which is now extended by another 6 months to Dec-19. Recall that post Budget-2019 announcement in Nov-2018, property stocks were hammered down given government directives for developers to reduce house prices by 10% (due to SST exemptions on construction/building materials) and overall broad market weakness.

In terms of the recent 1QCY19 reporting season, it has been uneventful with 36% out of the 14 stocks under our coverage (i.e. AMVERTON, HUAYANG, LBS, MAGNA, MRCB) coming in below expectations (refer to APPENDIX result review details).

*Note that this report is based on 21/6/19 price cut-off date.

Source: Kenanga Research - 4 Jul 2019