AmInvestment staying ‘Neutral’ on property sector


AMINVESTMENT Bank Bhd is maintaining its ‘Neutral’ view on the property sector, as overall sentiment remains depressed amid the Covid-19 pandemic, slowing economic growth and the country’s RM18.77 billion residential overhang.

Most developers are still assessing the economic situation and deliberating whether to continue or defer future launches, it said.

“We believe consumer sentiment shall remain weak for the time being with spending mainly focused on necessities while big-ticket items such as properties take a back seat.

“Nevertheless, developers under our coverage have a reasonable amount of unbilled sales, hence they shall remain profitable in financial year 2020 (FY20) to FY21,” AmInvestment said in a research note yesterday.

The developers under its coverage include Crest Builder Holdings Bhd, Eco World Development Bhd, IOI Properties Group Bhd, Mah Sing Group Bhd, Malaysian Resources Corp Bhd, Sime Darby Property Bhd, SP Setia Bhd, Sun- way Bhd, Titijaya Land Bhd and UEM Sunrise Bhd.

The research house is lowering its assumptions on the developers’ sales targets and cutting its earnings forecasts to reflect the impact from lower sales and the timing of revenue recognition.

It said most developers are trading at a price-to-book-value (P/ BV) of 0.2 times to 0.4 times, with the exception of Sunway (0.88 times), whereby the property development business makes up 24% of the group’s total profit.

Based on historical numbers, Malaysian property developers traded in the range of 0.19 times to 0.8 times in 1998 and 0.17 times to 0.85 times in 2008 at their all-year low levels.

“At the current level of 0.2 times to 0.4 times, the stocks are trading at a discount to the 1998 and 2008 average low of around 0.5 times.

“If the current economic condition persists, we believe property developers will still trade at their current P/BV levels,” AmInvestment said.

However, the research firm said it will reduce its discount to revalued-net-asset-value when the economic conditions and new sales improve in the future.

Its top picks for the sector are Sunway for its diversified income base and IOI Properties which is banking on its property development projects in China.

For retail/hospitality real estate investment trusts (REITs), the research house expects the near-term outlook to be challenging.

It revised its FY20-FY21 earnings estimates for REITs downwards by an additional 5% on lower rental rate expectations.

“Retail REIT managers are adopting a proactive stance in supporting their tenants through this difficult time.

“As the economy may take some time to regain its momentum, we believe the impact to the bottom line will be felt for at least several months,” AmInvestment added.

Bank Negara Malaysia is projecting Malaysia’s GDP to be between -2% and +0.5% for 2020, due to the economic effects of the Movement Control Order that was imposed to curb the Covid-19 spread.

Malaysia’s GDP grew 4.3% in 2019, the lowest since the global financial crisis.

According to data from the National Property Information Centre, Malaysia’s residential property overhang also remains a major concern, with 31,092 units worth RM18.77 billion as at third-quarter of 2019.