Neutral stand on property sector for 2H 2021, says investment bank

AMINVESTMENT Bank has maintained their neutral stance on the property sector for 2H2021.

“We are cautious on the sector due to slower 2H 2021 recovery as tighter containment measures (from June onwards) have led to the closure of sales galleries and halted property construction activities,” the bank said in a sector report on Sept 6.

“This is also due to banks remaining cautious in residential property lending, which is reflected in the low approval rate of 36% as compared to 51% to 53% during the 2011–2014 uptrend.”

Its neutral stance is also due to the persistently subdued consumer sentiment and employment prospects against a backdrop of the prolonged pandemic, which are restraining consumers from committing to the purchase of big-ticket items, particularly, a house.

According to the investment bank, out of the six companies under the investment bank’s coverage, one had exceeded expectations, three were in line while two companies came in below the bank’s forecasts.

Except for UEM Sunrise which registered a sharp 86% year-on-year (yoy) drop in core loss, most of the developers have successfully shown more than 30% increase in their bottom line from the low base in 1H CY20 despite prolonged movement control orders (MCOs).

“The outperformer, IOI Properties Group (IOIPG), registered better-than-expected FY21 earnings, underpinned by higher progress recognition together with stronger sales in Malaysia (61%) and China (38%) exceeding management’s initial sales target by 28%.

“The core net profit of Sunway, SP Setia and Sime Darby Property (SimeProp) came in within expectations.

“Both Setia and SimeProp returned to the black in the 1H CY21, driven by higher revenue in property development and property investment.

“Sunway’s property segment continued to be supported by its international portfolio, particularly in Singapore which accounted for 61% of the group’s 1H FY21 total sales, coupled with higher progress billings from local construction projects and stronger recovery in hospital activities.”

Both Mah Sing and UEM Sunrise (UEMS), meanwhile, fell short of the investment bank’s forecasts.

“Mah Sing was weighed down by higher-than-expected pre-operating costs for its glove business and weaker-than-expected hotel contributions while UEMS was dampened by slower construction progress/billings and higher-than-expected finance costs.”

Quarter-on-quarter (qoq), according to AmInvestment Bank, Sunway and Mah Sing posted stronger 2Q FY21 earnings growth.

However, SP Setia declined by 31% qoq from weaker contributions in construction and investment properties while SimeProp dropped 66% qoq from slower progress billings in property development.

“The worst performer, UEMS, incurred a wider loss as intensified lockdowns badly impacted all segments except for its overseas property development.”

Meanwhile, sales momentum remains intact with new sales achieved in 1H 2021 rising substantially by 2.3 times yoy to RM8.6 bil from a low base in 1H 2020.

“Except for IOIPG which exceeded its full-year FY21 sales target, most of the companies attained 50% to 75% of their FY21F sales target versus 13% to 51% in the previous year.

“Despite a full lockdown in June, qoq sales were still sustainable, thanks to the ongoing Home Ownership Campaign (HOC) which accounted for more than 48% of local sales, digital marketing initiatives and successful new launches.”

There is also dampened interest from stricter Malaysia My Second Home (MM2H) programme.

Suspended in August 2020, the programme is now set to resume in October 2021 with stricter terms and conditions, particularly in financial requirements.

“In line with most of industry experts’ views, we reckon this to be negative for the sector given that the financial thresholds have surged by more than 200% for applicants who are below and above 50 years old.

“Nevertheless, as foreigners are only allowed to purchase properties with selling prices of over RM1 mil in most cases, we expect a slight impact to sales as the contribution from foreign buyers to the developers under our coverage was minimal at only 1% to 5% during the pandemic versus 10% before the pandemic.

“Thus, we make no changes on our forecasts for now.” – Sept 6, 2021

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