KEY HIGHLIGHTS

• House Price Index growth slowed to 5.3% in 2Q2016

• Property transaction value declined qoq and yoy in 3Q2016

• Consumer Sentiment Index is also weaker in 3Q2016

• Marginal recovery of in loan demand and approval rate in October

• Maintain NEUTRAL on the sector with UOADEV (BUY; TP: RM2.68) as top pick

House Price Index growth slowed to 5.3% in 2Q2016. HPI grew by 5.3%yoy to 235.4 in 2QCY2016. Note that this is significantly lower than the 5-year average growth of 9.3%. Among the key states, the slowest yoy growth was recorded in Penang (+4.6%yoy to 266.1). Kuala Lumpur HPI growth was better at +6.9%yoy followed by Selangor’s +6.6%yoy. We believe that the outlook for property price is better in Greater KL (Selangor and KL) due to the support from urbanization factor.

Property transaction value declined qoq and yoy in 3Q2016. According to the latest Property Market Report released by National Property Information Centre (NAPIC), Malaysia property market transaction value has declined 6.3%qoq to RM30.8b in the 3Q2016. The lower transaction value is consistent with the fall in transaction volume by 8.5%qoq to 76,456 units. Against similar quarter last year, 3Q2016 property market transaction value declined 17.9% mainly due to 11.0% decline in volume. We believe that the data reflects slow demand recovery among consumers due to ongoing concerns on weak Ringgit and uninspiring employment outlook.

Consumer Sentiment Index is also weaker in 3Q2016. The latest publication from Malaysian Institute of Economic Research (MIER) shows that 3Q2016 Consumer Sentiment Index (CSI) has weakened to 73.6 in from 2Q2016’s 78.5. We gather that while household income has improved the employment and financial outlook is still uninspiring. We believe that the data suggest that the demand outlook for potential property buyers remains soft in 2017 and they are likely to remain price sensitive.

Marginal recovery of in loan demand and approval rate in October – Loan demand (as measured by “Applied Loan for Purchase of Property” by Bank Negara data) showed marginal recovery in October by inching up 2.1%mom to RM25.2b. On a yearly basis, applied loan in October was relatively unchanged while total applied loan on a cumulative 10MCY2016 declined 4%yoy to RM242.7b. Loan approval rate (approved loan/applied loan) increased in October improved marginally to 43.7% from 42.7% in September. Nevertheless, it remains lower than loan approval rate of 47.7% in October last year. As a result, “Approved Loan for Purchase of Property” in October was higher by 4.4%mom to RM11.0b on the back of higher applied loan and higher loan approval rate. Nevertheless, approved loan in October was 9% lower yoy. On a cumulative basis, total approved loan for 10M2016 is at RM100.3b (-18%yoy).

Maintain NEUTRAL with UOADEV (BUY; TP: RM2.68) as our top pick. Overall, we maintain our NEUTRAL view as we think that sales will be at best flattish in 2017. For stock pick, we like UOADEV for: i) minimum 60% sales growth expected in FY16 to RM1.3b (against FY15’s RM800m), ii) sturdy balance sheet of UOADEV with net cash of 44 sen per share, iii) highest dividend yield among peers at 6.4% and iv) we expect positive sentiment following the inclusion of UOADEV into FBM Mid 70 Index as mid-cap fund managers may allocate more funds to invest in the company.

30 December 2016 | Sector Update

Source: MIDF Research - 30 Dec 2016