AFFIN Hwang Capital has reiterated its neutral rating on the property sector as market conditions remain challenging.
In a note on Jan 15, the research house said this is reflected in the current low sector valuations with average 2020E core PER of 13x and price/book of 0.6x.
“This may spark an industry consolidation or major shareholders taking property companies private. We prefer developers with overseas property exposure and strong financial position.
“Sustained revenue growth and a slow recovery in profit margins should drive core earnings per share (EPS) growth of 7% yoy in 2020E,” it said.
According to the research house, most property developers will report weaker sales in 2019 with fewer new property launches.
However, the Home Ownership Campaign (HOC) stamp-duty waiver extension to the end of 2019 supported the recovery in housing demand.
It believes that the Budget 2020 measures to liberalise foreign ownership of condominiums and serviced apartments, introduce a government-supported Rent-to-Own scheme and recalibrate the real property gains tax will sustain the recovery in 2020.
Affin Hwang stated that the residential property overhang fell 3.8% year to date (YTD) to 31,092 units in the first nine months of 2019, representing 25.7% of total units launched, while the total value of overhang units fell 5.5% to RM18.77 bil as at the end of the third quarter of 2019 (3Q19).
“According to the Housing and Local Government Minister Zuraida Kamaruddin, the HOC generated total sales of RM23.2 bil in 2019, surpassing the government’s initial target of RM17 bil,” it said.
The research house believes the number overhang units fell further in 4Q19, driven by last-minute buying to benefit from the HOC stamp-duty waiver.
“Similarly, aggregate inventories for the property developers under our coverage fell 11% YTD to RM19.5 bil at end 3Q19,” it said.
The research house added its top buys are Sunway Bhd, IOI Properties Bhd and UOA Development Bhd.
However, AmInvestment Bank Research has maintained its buy call on Mah Sing Group Bhd at 70 sen, with an unchanged fair value of RM1.13, offering a potential gain of 60%.
It said its rating is supported by a sum-of-parts valuation which detailed a 45% discount to Mah Sing’s revalued net asset value.
The research house also maintained Mah Sing’s net profit forecasts for FY19-21 of RM229.6 mil, RM258.9 mil and RM279.5 mil respectively.
Mah Sing accrued new sales of RM1.136 bil in 9MFY19 and is on track to capture its FY19 target of RM1.5 bil. Meanwhile, unbilled sales of RM1.7 bil will be progressively realised over the next three years. – Jan 15, 2020