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TA Securities upgrades property sector to overweight

KUALA LUMPUR (Oct 16): TA Securities Research has upgraded the property sector to "Overweight" (from Neutral) and said since August 2019, developers' share prices were heavily bashed down amid concerns on rising property overhang and slow property demand due to financing issues.

In a note today, TA Securities said year to date, developers' share prices underperformed the benchmark index, with the KLPRP index falling 12% as compared to the benchmark FBM KLCI, which declined by 7.4%.

It said incentives from Budget 2020 should help to address the oversupply and financing issues.

The research house said these incentives included the RM10 billion Rent-to-own (RTO) Financing Scheme provided by financial institutions for the purchase of first home up to RM500,000, lowering the threshold on high-rise property prices in urban areas for foreign ownership from RM1 million to RM600,000, extension of the Youth Housing Scheme, and the real property gains tax (RPGT) valuation on property would only be calculated from the year 2013 onwards (previous base year of 2000).

"We continue to see the accommodative interest rate environment to bode well for the housing market," said TA Securities.

It said with various efforts to spur housing market activities, there were trading opportunities to buy undervalued developers.

"The sector is currently trading at an attractive valuation of 10.0x and 0.6x CY20 PER and PBV respectively vs five-year historical average PER & PBV of 12.9x and 0.9x." it said.

"Note that we upgraded our sector recommendation to Overweight from Neutral in our Budget 2020 strategy report dated Oct 11 as we upgraded four stocks to Buy from Hold given the improving upside potential," it added.

TA Securities added that in terms of stock picks, it preferred township developers such as S P Setia Bhd (TP: RM1.89) and IOI Properties Group Bhd (TP: RM1.40), which have greater flexibility in terms of product offering and pricing for their new launches, thanks to their relatively low land cost.

"We are also positive on Sime Darby Property Bhd's (TP: RM0.99) near term prospects given its FY19 sales target is intact and the monetization of low-yielding and non-core assets are also on track," it said.

TA Securities said it may revise the overweight stance to neutral should it see weaker-than-expected sales growth, unfavourable policies introduced, and stricter lending criteria adopted by financial institutions.

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