Property companies to record higher earnings in 2022

by S BIRRUNTHA / pic by BLOOMBERG

EARNINGS outlook for property companies is expected to be better in 2022 as construction activities at project sites normalised, according to MIDF Amanah Investment Bank Bhd.

The research house said the higher sales recorded by property companies in 2021 should translate into higher earnings this year.

“Nevertheless, we think that new property sales outlook would be flattish to slightly positive in 2022 as the stronger buying interest from easing of movement restriction would be partially offset by the discontinuation of the house ownership campaign (HOC).

“In addition, we reckon that the low conversion rate will remain a challenge for property developers to convert booking into sales,” it said in a note yesterday.

As such, MIDF has maintained its ‘Neutral’ stance on the property sector.

It noted that its ‘Buy’ calls for the sector are Mah Sing Group Bhd with a target price of RM0.80 and IOI Properties Group Bhd with a TP of RM1.29.

The research house said it is positive on Mah Sing due to its positive new sales outlook which is underpinned by a strategy of creating affordable range properties.

Additionally, it said the group’s earnings outlook is also supported by full year contribution from the gloves manufacturing division.

Meanwhile, the research house said it likes IOI Properties Group due to its undemanding valuation of trading at a steep discount of 72% to latest net tangible assets of RM3.60 per share.

It also added that new sales prospects of IOI Properties Group will continue to be driven by launches of projects in Malaysia and China.

On that note, MIDF highlighted that total loan applied for purchase of property recovered strongly to 31.8% year-on-year (YoY) to RM441 billion in 2021 from RM334.8 million in 2020.

However, it said total loans applied for purchase of property declined by -6.3% YoY in 2020 mainly due to the adverse impact of lockdown.

“The recovery in loan application for purchase of property in 2021 indicated recovery in property demand as a result of pent-up demand.

“Besides, we opine that the recovery in demand was also driven by HOC which is the government initiative to support purchase of property by homebuyers,” it said.

The research house also added that loan application in January 2022 remains strong at 5.4% YoY to RM34.6 billion as buying interest was higher following easing of movement control measures under National Recovery Plan.

MIDF said the total loan approved for purchase of property was higher at 7.3% YoY at RM136.3 million in 2021, in line with higher loan applications for purchase of property.

It added that this has translated into higher property sales of property companies.

Notably, it said Mah Sing reported higher sales of RM1.6 billion in the financial year 2021 (FY21) from RM1.1 billion in FY20, UEM Sunrise Bhd recorded higher sales of RM1.46 billion in FY21 from RM1.1 billion in FY20, while SP Setia Bhd recorded higher property sales of RM4.26 billion in FY21 from RM3.82 billion in FY20.

Nevertheless, the research house noted that conversion of bookings into sales remains challenging due to stringent bank requirements.

“The percentage of total approved loan over total applied loan for purchase of property remained low at ~35% in 2020 and 2021.

“Hence, we expect that the low conversion rate to remain a challenge for property developers in the near-term,” it said.

MIDF also noted that the KL Property Index underperformed KLCI in 2021 by recording a decline of -4.22% in 2021 against KLCI’s decline of -3.67%.

It noted that the underperformance of KL Property Index was mainly attributed to the higher beta nature of property companies amid uncertain economic outlook in 2021 and Covid-19 pandemic.

“The top three worst performing property companies were Meridian Bhd (-84.7%), Jiankun International Bhd (-61.5%) and Acme Holdings Bhd (-61.3%).

“Meanwhile, KL Property Index gained +1.8% in the first two month of 2022 amid better earnings outlook for property companies and recovery in economy,” it said.