Room for growth for developers with overseas projects

AMINVESTMENT Bank expects certain segments of the property sector to outperform in the current challenging market conditions.

“We believe developers with overseas exposure will do better in the medium term, especially in China and Singapore,” the research house says in a note on Dec 30.

It adds that Sunway Bhd (buy, FV: RM2.07) and IOI Properties Group Bhd (buy, FV: RM1.73) are among the developers which are well positioned in this segment and their property launches have been generally well received locally and overseas.

AmInvestment expects landbanking activities to continue in 2020 with a few developers acquiring land in locations close to the Kuala Lumpur city centre, major expressways and LRT/MRT. It notes that Sunway and Mah Sing Group Bhd had adopted this strategy in 2019.

Meanwhile, the research house believes affordable property will continue to have strong demand in 2020 driven by urbanisation.

“The interest of foreigners in the property market is expected to be further stimulated by lowering of the threshold for foreign ownership of condominiums and apartments to RM600,000 which was announced in Budget 2020,” it adds.

AmInvestment says developers such as Mah Sing, S P Setia Bhd, Malaysian Resources Corporation Bhd, Eco World Development Group Bhd and Titijaya Land Bhd have projects which are at their nascent stages and as a result revenue recognition will not be strong in 2020.

As such, it opines that these developers would see earnings growth of a mere 4-5% for FY20 given the current sales figures, progress of construction and timing of revenue recognition, translating into a PER of 20x.

The research house’s top picks in the sector include Sunway and IOI Prop due to their projects’ good locations and diversified income basis.

As for REITs, it expects them to be stable in the near term, especially shopping malls. Pavilion REIT and Sunway REIT are its preferred companies due to strong management and high occupancy rates.

It also likes YTL REIT for being a hospitality REIT with exposure to the Australian and Japanese markets which provide steady income.

Overall, AmInvestment expects the property market to remain challenging in 2020 and is maintaining its “neutral” call for the sector in 2020.

The research house says it may upgrade the property sector if the banks ease lending requirements or if consumer sentiment improves.

Alternatively, it may downgrade the sector if banks impose stricter lending requirements or if there is further erosion in consumer sentiment.

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