KUALA LUMPUR (July 20): AmInvestment Bank Bhd (AmBank) maintained its “neutral” view on the property sector as its outlook for the next 12 months remains challenging due to the onset of the Covid-19 pandemic and the resulting movement control order (MCO) to control its spread that had halted economic activities for almost two months.
According to its analyst Thong Pak Leng, consumer sentiment would remain weak for now as they prioritise spending on necessities and put big-ticket purchases such as properties on hold.
“Companies such as S P Setia Bhd, MRCB (Malaysian Resources Corp Bhd), EcoWorld, Titijaya Land Bhd and UEM Sunrise Bhd have many projects still in their early stages, hence we do not expect strong revenue recognition in the next 12 months.
“On the other hand, we remain cautious about the financial leverage of some companies as it is one of the key factors of their survivability during an economic downturn.
“Based on our data, the net gearing of developers under our coverage is still under control, averaging at about 36%, while interest coverage remains strong at about eight times,” he said in a note.
He expects the affordable segment to perform better, driven by the mass market, especially demand from young professionals and families due to continued urbanisation.
This trend, he said, is evident as most local property developers are focusing on this segment.
Thong also noted that the National Economic Recovery Plan (Penjana), which reintroduced the homeownership campaign that waives stamp duty on purchases of residential properties priced from RM300,000 to RM2.5 million, as well as real property gains tax for property sales from June 1, 2020 to Dec 31, 2020, is good news for developers.
“These key measures will improve the overall sentiment of house buyers and the residential property market in Malaysia,” he said.
“We maintain our ‘neutral’ view on the property sector as we do not anticipate earnings surprises in the short to medium term. Our top pick for the sector is IOI Properties Group Bhd (‘buy’; fair value [FV]: RM1.52), which is banking on a strong contribution from its property development projects, particularly in China and Singapore,” he said.
As for the long-term outlook for real estate investment trusts (REITs), Thong holds a positive view given the diminishing rate of Covid-19 cases in Malaysia, while several stimulus plans by the government provide greater earnings visibility.
“Furthermore, Malaysian REITs’ dividend yields of more than 4% on average for FY20, and more than 5% for FY21 and beyond, offer attractive returns compared to the current low interest rate environment.
“We have ‘buy’ recommendations for Pavilion REIT (FV: RM1.99) and YTL Hospitality REIT (FV: RM1.36),” he noted.
At the time of writing, IOI Properties was unchanged at 93.5 sen, valuing the company at RM5.15 billion. Meanwhile, Pavilion REIT was also unchanged at RM1.60, valuing the trust at RM4.9 billion, whereas YTL Hospitality REIT remained at RM1.01, giving it a market capitalisation of RM1.74 billion.