Property sector upgraded to ‘Overweight’ despite lockdown restrictions

Cyclical stocks are starting to see recoveries picking up speed after the Covid-19 vaccination drive started early this year

by ANIS HAZIM / Pic by HUSSEIN SHAHARUDDIN

ANALYST has upgraded the property sector to ‘Overweight’ on expectation that sector valuations will improve with better pre-sales kicking in.

Public Investment Bank Bhd said the property sector’s nascent recovery in 2019 was circumvented by the pandemic-induced economic calamity in early-2020, which effectively reduced the sector to ‘Un-investable’, weighed by economic stress, affordability and overhang issues.

“Property players are now on stronger footing with their kitchen-sinking of inventories last year, and have proven their resilience despite a few months of zero revenue due to lockdown restrictions,” said its analyst Tan Sian Hing.

According to Tan, cyclical stocks are starting to see recoveries picking up speed after the Covid-19 vaccination drive started early this year.

“We believe the property sector has more room to run as the economy starts to recover in the second half of 2021 (2H21), with herd immunity expected by end-2021,” Tan said.

He also believes that the absence of exogenous shocks, property pre-sales and the sales recovery seen before the pandemic struck in 2019 should resume.

To recap, last year, SP Setia Bhd’s stock price plumbed to -0.2 time price-to-book value (worse than -0.3 time book value during the 1997 Asian financial crisis). The Kuala Lumpur Property Index also dropped to 0.2 time book value.

Moreover, the calendar year 2020 sales dropped -9% year-onyear primarily due to pandemic lockdowns.

Maybank Investment Bank Bhd (Maybank IB) has maintained its ‘Neutral’ rating on Malaysian properties with ‘Buy’ picks remaining unchanged.

Its analyst Wong Wei Sum said the one-month long Full Movement Control Order (FMCO) will adversely affect the second quarter ended Jan 31, 2021 (2Q21), sales and earnings.

“We are still holding our belief that the property sector is poised for recovery in 2021 thanks to historically low-interest rate and pent-up demand, and sales should pick up again once the FMCO is lifted,” she said.

Wong added that the positives appear to have been largely priced in, and Maybank IB’s coverage stocks now offer limited upside to its target prices (TPs).

She also views that the political uncertainty post-Emergency ending Aug 1, 2021, could overshadow sector fundamentals.

Wong expects quarter-on-quarter decline in 2Q21 due to its sales and SPA signing postponed until FMCO is lifted.

“While we are holding our belief that the property sector is poised for recovery in 2021, share prices look to have largely priced in the positives. Stock prices could potentially overshoot our TP on rotation into recovery or value-themed stocks, but such gains are unlikely to be sustainable,” she said.

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