Mah Sing is Macquarie's top pick in Malaysian property sector

-A +A

KUALA LUMPUR (Dec 16): Property developer Mah Sing Group Bhd was chosen by Macquarie Research as its top pick for the Malaysian property market.

In its strategy report dated Dec 15, Macquarie Research analyst Aiman Mohamad said Mah Sing has placed itself well in the market to capture first home buyers and upgrades at affordable pricing points.

"Not only is Mah Sing pricing it right, it is also hugely exposed in the central region. We believe, given the current property market conditions, Mah Sing will retain its exposure in the affordable segment in 2016 as this segment was seen to have better support from the buyers, especially in the central region," he said.

Macquarie Research, which is overweight on the property sector, said its main thesis for the property sector in 2016 remains the central region's affordable play, as the region gives a better demand-supply match for launched properties.

"We think, going forward, the affordable segment with a pricing point of around RM500,000 per unit will continue to drive the sales numbers for property developers," it noted.

Despite its overweight stance, Macquarie Research thinks high-end segment developers are not favourable with the slump in oil prices.

"We gathered that the high-end segment buyers used to be the oil and gas players, both expats and the locals. Since the oil price crisis, a lot of layoffs have happened and some expats were sent back to their base countries," it said.

As such, it said demand for high-end property weakens in Malaysia and that 2016 will be a challenging year for developers in the high-end segment, except for those with a huge follower base, which may continue to do well in 2016.

"The likes of EcoWorld (Eco World Development Group Bhd) may continue to surprise the market with its hefty sales numbers despite the property market slowdown, mostly coming from the loyal followers of [the chairman], Tan Sri Liew Kee Sin, the former founder and CEO (chief executive officer) of SP Setia Bhd," it said.

It also believes that Eastern & Oriental Bhd (E&O), despite lackadaisical share price performance in 2015, may surprise the market when they manage to secure the level 1 investor for its Seri Tanjung Pinang 2 (STP2) project in Penang, especially if the company manages to get a partner with huge branding power and goodwill.

"Should this happen, not only could E&O ride on the goodwill of the partner, but it could also set a higher benchmark for the land at STP2, which in turn will propel its GDV (gross development value) for the STP2. In the past, E&O has collaborated with Khazanah Nasional and Temasek to co-develop its property project in Medini, Johor," it noted.

Further, it said that any regulatory changes that loosen the standards for homes priced at RM500,000 and below, like the reintroduction of developer interest bearing scheme (DIBS), may welcome more buyers into the segment.

Downside risks, it said, would be further cooling-off measures.

"Although it is unlikely the regulators will introduce more cooling measures, we believe something might be on the cards if the house price index continues growing at a fast pace despite the slowdown in the Malaysian property market," it added.

At 4.59pm, Mah Sing was trading 1 sen or 0.75% lower at RM1.33, for a market capitalisation of RM3.2 billion. E&O was 4 sen or 2.72% higher at RM1.51, valuing it at RM1.88 billion, while EcoWorld was unchanged at RM1.48, valuing it at RM3.5 billion.

(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)