Kenanga stays ‘neutral’ on property, favours EcoWorld, IOI Properties on strong cash flows

• Kenanga said it favours EcoWorld because of its strong branding and mature townships, while IOI Properties is a top pick because of the hidden value of its prime investment properties in the Klang Valley, Singapore and China that could potentially be developed through a real estate investment trust.

KUALA LUMPUR (Aug 11): Kenanga Research has maintained its "neutral" stance on the property sector, naming Eco World Development Group Bhd (EcoWorld) and IOI Properties Group Bhd as its top picks, which have strong cash flows that could anchor good dividends in the current challenging operating environment.

In a note on Friday (Aug 11), Kenanga said it favours EcoWorld because of its strong branding and mature townships, while IOI Properties is a top pick because of the hidden value of its prime investment properties in the Klang Valley, Singapore and China that could potentially be developed through a real estate investment trust.

The research firm has an "outperform" recommendation for EcoWorld, with a target price (TP) of RM1.03, and also an "outperform" call on IOI Properties, with a TP of RM1.60.

Overall, Kenanga said the property sector outlook will remain challenging amid higher interest rates and rising inflation, resulting in weaker consumers’ purchasing power for big-ticket items.

In addition, the research firm maintained its cautious view on the high debt levels of some developers, which would lead to higher financing costs and a potential liquidity crunch in the current interest rate cycle.

“Already faced with a tough operating climate, these developers’ earnings will be hurt further by the high financial leverage.

“Besides, we note that developers holding large tracts of idle land acquired through borrowings will see the carrying cost of the land rising via the capitalisation of hefty interest cost in the current high interest rate environment, impeding the commercial viability of future launches. Such developers under our coverage include S P Setia Bhd (‘underperform'; TP: 38 sen),” it added.

At the time of writing on Friday, EcoWorld’s share price had risen 1.5 sen or 1.61% to 94.5 sen, valuing it at RM2.78 billion. IOI Properties inched up one sen or 0.74% to RM1.36, giving it a market capitalisation of RM7.43 billion.

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