KUALA LUMPUR (July 3): Kenanga IB Research maintained a neutral call on the property developer sector amidst a relatively quiet second quarter of 2015, in relation to new launches, given the weak demand sentiment and challenging lending environment.

In a research note, Kenanga said 57% of developers under its coverage were behind their sales targets and that most developers’ share prices fell further by up to 24% over second quarter of 2015 (Q2CY15).

It said though it might appear that the sector is finding a bottom, there are no fresh catalysts for the sector.

Kenanga added that the property development sector might also be susceptible to macroeconomic risks and broad market weakness, since it is a high-beta sector which may translate into further share price risks.

Also, most launches were skewed towards the second half of 2015, while some developers have only just started to offer previews of their projects.

“We gather that bookings and registrations are high, possibly due to pent-up demand, the tighter lending environment has resulted in higher attrition rates when it comes to converting booking sales to sale and purchase agreements.

“As a result, data on take-up rates are still lacking and since we are only at the half-year mark, this does raise concerns on whether developers can meet even their already toned-down sales target,” Kenanga said.

Although landbankings are expected to improve, Kenanga said such `newsflows’ might be patchy and investors would not react positively in light of weaker sales environment.

Kenanga said the affordable housing theme would stay, but most developers are expected to find challenges catering to such segments relating to landbank usage for longer-term margin expansion or shorter-term volume cash flow.

In April, Kenanga advised investors to be patient, as it felt the sector had only dropped temporarily, but now claim their fears were founded since the KL Property (KLPRP) index slid by 5.5% over the quarter under review.

It noticed that the stocks under its coverage such as Sunway Bhd, Mahsing Group and Tropicana, saw range-bound returns between 0% and 4%, while other stocks were sold down between -3% and -24% over the period.

“UEM Sunrise Bhd, IOI Properties Group Bhd, Eco World Development Group Bhd and KSL Holdings Bhd were some of the most heavily bashed-down stocks during this period.

“That was largely due to concerns over Johor exposures (UEM, KSL, Eco World), concerns on Eco World’s high leverage and changes in the method of Eco World International Bhd listing, lack of earnings clarity and direction (IOI).

“The developers under our coverage unanimously cited that pipeline launches are all skewed towards 2H15,” said Kenanga, adding that big cap developers continued to disappoint, while small and mid sized developers outshine the KLPRP.

At 12.02 today, the KLPRP index dropped 0.59% or 7.19 points, to settle at 1,216.5 points.