• Maintain OVERWEIGHT. Developers that are establishing an asset base and have solid capital management and a monetisation strategy should garner higher valuation premiums, given their stronger earnings quality ahead. The thriving industrial sector brings about strategic opportunities for property players to accumulate assets. We expect this high-beta sector to continue to perform. While valuations of the big-cap property stocks will likely stay elevated, some smaller-cap quality developers may catch up to the former. Top Picks remain Sime Darby Property, Mah Sing, Sunway and UEM Sunrise.
• Developers with a stronger asset base should trade at a premium. Over the last five years, we have seen many developers gradually diversifying into other new businesses, in order to ramp up their steady income streams after going through almost a decade of slowdown in the property market. In our view, valuations of these companies should be re-rated further, given their better earnings quality and stability going forward. Sunway sets a good benchmark. We think investors should start to take positions in some of the companies such as Sime Darby Property (SDPR), Mah Sing and Matrix Concepts. Apart from strengthening earnings, their growing recurring income businesses and investment property portfolio should lead to opportunities for value-unlocking - similar to the growth journey of Sunway.
• Opportunities to accumulate assets emerge as industrial sector thrives. South-East Asia is still a sweet spot for global trade and will likely see foreign direct investments rise - benefiting from trade diversions after Donald Trump becomes the next US president later this month. Developers with exposure to industrial development should continue to benefit. Apart from land transactions and the development of industrial properties, demand in this area may also represent a strategic opportunity for developers to accumulate industrial property assets over the medium term.
• We expect valuations of quality small-cap developers to catch up to that of larger peers - especially those with strong property sales, healthy balance sheets, strategic landbanks, and exposure to niche segments. The big-cap property stocks (top 20) have an average total return of 57% vs 16% for those ranked 21-40 by market cap in 2024. Consistent sales and earnings delivery would be the key for share price discovery.
• Other potential catalysts: the Kuala Lumpur-Singapore High Speed Rail (KL-SG HSR) and Penang Special Financial Zone (SFZ). Over the near term, the signing of a definitive agreement related to the Johor-Singapore Special Economic Zone (JS-SEZ) and recent news flow on the KL-SG HSR and Bandar Malaysia will likely buoy sentiment on the sector. In Penang, the state government is mulling over the establishment of a SFZ. Potential sites for the SFZ include Gurney Bay and Andaman Island. The biggest beneficiary would be Eastern & Oriental, given its prominent presence in the area.

Source: RHB Research - 3 Jan 2025