Weak sentiment weighs on property sector

With spending mainly focused on necessities, big-ticket items such as properties will take a back seat for now


PROPERTY stocks will remain unattractive to investors due to weak consumer sentiment, while the poor global economic outlook continues to weigh down on the sector.

AmInvestment Bank Bhd (AmInvest Research) analyst Thong Pak Leng said most listed developers remain cautious and are still assessing the economic situation before deciding to proceed with or defer future launches.

“We believe consumer sentiment will remain weak for the time being with spending mainly focused on necessities, while big-ticket items such as properties will take a back seat for now,” he said in a research note yesterday.

Thong said developers generally reported lower new sales year-on-year (YoY) by 24.5% due to the lacklustre market, impact of the Movement Control Order (MCO) and Covid-19.

“Hence, we do not expect to see surprises in earnings over the next 12 to 18 months. Developers are more aggressive in clearing unsold units by offering discounts with the inventory level on a declining trend. We believe this is a positive move to realise cashflow.

“We retain our ‘Neutral’ view on the sector as we do not anticipate earnings surprises in the short to medium term,” he said.

AmInvest Research has ‘Buy’ calls on IOI Properties Group Bhd with a fair value (FV) of RM1.86 and Mah Sing Group Bhd (FV: RM1.28).

Its call on IOI Properties is backed by strong contribution from the company’s property development projects in China, while Mah Sing is poised to benefit from the strong take-up rates of its recent launches and upcoming rubber glove business.

The research house could upgrade its stance for the property sector if banks ease lending policies on properties or consumer sentiment improves significantly.

Thong said the results of the six companies under AmInvest Research’s coverage for the fourth quarter calendar year 2020 (4QCY20) are largely below expectations. Only two were in line, while four came in below expectations.

IOI Properties and Mah Sing were the only firms whose profit came in within expectations, while the results of Crest Builder Holdings Bhd, Malaysian Resources Corp Bhd (MRCB), Sime Darby Property Bhd and SP Setia Bhd were lower than expected.

IOI Properties registered in its first half of the financial year end- ing 2021 (1HFY21) a net profit of RM336.39 million partly due to stronger contribution from projects in Malaysia and China.

The construction progress of IOI Palm City Mall in China remains on schedule with business expected to commence by 3QCY21.

Mah Sing’s FY20 results met expectations though its profit declined by 25% YoY mainly attributed to the impact of the MCO on its 1HFY20 earnings.

“The property development division chalked up new sales of RM916 million against YoY’s RM875.5 million, whereby 52% were derived from Malaysia and 46% from China. Its unbilled sales stood at RM696.8 million compared to quarter-on-quarter value of RM607 million.

“All companies posted lower earnings or made losses in 4QCY20 mainly due to slower recognition as a result of the MCO,” Thong noted.

Mah Sing, SP Setia and Sime Darby Property still have multiple projects in early stages, hence revenue recognition in FY20 was lower compared to the year prior.

MRCB reported an FY20 net loss of RM176.14 million against a net profit of RM23.74 million YoY attributed to deferments in construction works and progress billings.

SP Setia and Sime Darby Property posted FY20 net losses of RM453.1 million and RM478 million respectively, mainly on impairment of inventories in the Battersea project in the UK.

Stripping the exceptional items, SP Setia and Sime Darby Property’s FY20 core net earnings came in at RM22.8 million and RM141.7 mil-
lion respectively.

Read our previous report here

Property prices dropped in 1Q21