The Penang Island market is quiet due to weak sentiment, but mainland market is slow as a result ofdelays in APDL approvals. The very few new projects on the mainland have seen encouraging take-up, suggesting that the pent-up demand is still strong. Despite the risk of slow property sales which the market has largely priced in, we continue to like Tambun for its strategic landbank and healthy balance sheet.

• Minimal new launches in Penang. We recently went to Penang to visit some property compnies. Based on our ground checks and in line with the recent news articles, many developers, including the bigger ones, have not been receiving their advertising permits and developer licences(APDL) from the Ministry of Urban Wellbeing, Housing and Local Government to launch new projects. We understand that this longwaiting process started since last year and the submissions for those newly-launched projects, such as E&O’s Tamarind , IJM’s (IJM MK, BUY, TP: MYR6.77) semi-ds in Permatang Sanctuary and Eco World’s (ECW MK, NR) Eco Meadows were done long time ago.
• Pent-up demand still strong in Penang mainland. The drop in new property sales on the Penang mainland, hence, does not fully reflect the weak property market. The number of queries for Tambun Indah Land’s(Tambun) Avenue Garden is high and the booking rate for Eco Meadows was roughly 60-70%, according to our estimate. This suggests that the pent-up demand in Penang mainland is still strong, while the supply has been suppressed over the past 1-2 years. The positive response for Eco Meadows is a good indicator of the upside in property pricing going forward, as its terrace homes are sold at MYR710,000-850,000 with landarea of 20’x70’/22’x70’ and built-up area of 1,400-1,600 sqf, vs the current ASP of MYR400,000-500,000 in Seberang Perai Selatan.
• What about Penang Island? The property market in Penang Island is rather stagnant. Property prices have not declined, but transactions are slow. While Penang, as an electrical and electronic (E&E)/industrial/tourism hub, should benefit from the weaker MYR, we still see some MNCs looking to downsize. These include Fairchild Semiconductor International shutting down its plant in Bayan Lepas, and Intel shifting some of its operations to China and Vietnam from Kulim, Kedah.
• Maintain NEUTRAL. The timing of APDL approvals is uncertain, but the market has largely priced in the slowdown in overall property sales. We believe developers’ fundamental values should now be underpinned by their balance sheets and landbank values. For Penang exposure, we still like Tambun, given its strategic landbank and healthy financial position.

• New launches in Penang plunge. According to data from the National Property Information Centre (NAPIC), new launches in Penang have fallen substantially after the spike in 4Q14. In 1H15, there were only 430 new units released on the market compared with 2,190 in 1H14, plunging by 80% YoY. Based on Figure 1, on a combined basis, total residential units launched in Kuala Lumpur (KL), Selangor, Johor and Penang dropped by 36% YoY in 1H15, which was very much in line with the slowdown in the overall property market. Surprisingly, new launches in Johor remained quite high, but the weak demand, as reflected by the low take-up rate, is largely within our expectations. This also suggests that the oversupply issue will be prolonged.