Property

Property sector

Maintain neutral: Among our coverage universe, Matrix Concepts Holdings Bhd is the only developer that has managed to achieve positive growth in full-year sales (+28% year-on-year [y-o-y]) mainly due to its focus on the affordable mass market with a pricing range of below RM600,000.

The majority of the property developers remain cautious about financial year 2016 (FY16) outlook with an average sales target growth of 5%. Matrix Concepts and Eco World Development Group Bhd are more upbeat about annual sales target growth, with 24% and 33% respectively.

UEM Sunrise Bhd has the most bearish tone with a lower FY16 sales target of -36% y-o-y, mainly due to concerns about oversupply in Johor.

Loan applications continued to decline on a y-o-y basis for 12 straight months. Tight bank lending further dampened property sales with the approval rate persistently below 50% and achieved a new low of 38% in January this year.

Nevertheless, consumer sentiment may have bottomed given the expected improvement in household income (Employees Provident Fund contribution rate cut, civil servant pay rise and minimum wage hike).

Sector valuation is trading at 0.64 times price-to-book (P/B), below -1 standard deviation (SD) band versus crisis level of 0.47 times versus average of 0.82 times. For the revalued net asset value (RNAV) band, the sector is also trading at a 40% discount, slightly below -1 SD.

We opine that there is still a lack of near-term catalysts for the sector. Any potential relaxing of property measures will be a major rerating, given its low expectation and near- bottom valuation.

Under our stock coverage, IOI Properties Group Bhd and S P Setia Bhd are trading close to the bottom of the 10-year P/B band.

IOI Properties is trading at 0.65 times P/B versus its bottom valuation of 0.53 times, while S P Setia is trading at 1.27 times P/B versus its bottom of 1.12 times.

Both IOI Properties and S P Setia have a limited downside of 19% and 12% respectively compared with its bottom of the 10-year P/B band.

IOI Properties is trading at a significant discount to its average peer of 1 times P/B. We believe the discount is unjustified and should warrant a rerating given its size of market capitalisation and strong track record in township development. Stronger sales from China (relaxation of property measures) and a potential monetisation of its investment property through real estate investment trusts will be the long-term catalysts for the stock.

Our top picks are IOI Properties (Buy; TP: RM2.77) and Matrix Concepts (Buy; TP: RM2.91).

Matrix’s dividend yield is one of the highest in the sector at 7.1%. We also have a “buy” call on Sunway Bhd (TP: RM3.63) as its subsidiary Sunway Construction Group Bhd will be the main beneficiary of the Mass Rapid Transit 2, Light Rail Transit 3, Pan Borneo Highway, Damansara-Shah Alam Elevated Expressway and Sungai Besi-Ulu Kelang Elevated Expressway. — HLIB Research, March 23

Do not ask the taxi driver about the value of your home. Click here at The Edge Reference Price to find out.

This article first appeared in The Edge Financial Daily, on March 24, 2016. Subscribe to The Edge Financial Daily here.

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