HLIB: Property sector tailwinds to diminish in 2024, top picks Sunway, OSK, Sime Darby Property and IOI Properties

• The property sector stood out as the second best performing sector on Bursa Malaysia in 2023 as the KL Property Index recorded an impressive return of 34.5% — compared with FBM KLCI’s loss of 2.7% — amid correction of an earlier sector mispricing, sector recovery boosted by transient factors such as stronger earnings from accelerated billings; higher sales as there were more new products in the primary market; and higher launches as supply conditions improved.

KUALA LUMPUR (Jan 4): Hong Leong Investment Bank (HLIB) Bhd has maintained its "neutral" stance on the property sector on the expectation of a normalised pace of billings and moderate growth in new property launches and sales throughout the year of 2024.

The property sector stood out as the second best performing sector on Bursa Malaysia in 2023 as the KL Property Index recorded an impressive return of 34.5% — compared with FBM KLCI’s loss of 2.7% — amid correction of an earlier sector mispricing, sector recovery boosted by transient factors such as stronger earnings from accelerated billings; higher sales as there were more new products in the primary market; and higher launches as supply conditions improved.

In a note on Thursday, HLIB noted that many of the favourable conditions driving the property sector's growth in 2023 will diminish this year.

Specifically, the research house highlighted that the accelerated billings observed in 2023, attributed to developers catching up on progress to avoid liquidated ascertained damages (LAD) payment, are anticipated to diminish and normalise in 2024.

“Secondly, the higher sales in 2023, in our view, was partly due to some buyers shifting from secondary to primary market as more new products were available in the latter.

“As developers had scaled up launches significantly in the domestic market in 2023, these products will take some time for the market to absorb. As such, developers are unlikely to raise their launches significantly in 2024,” said the research house.

At the time of writing, the KL Property Index was 10.8 points or 1.2% higher at 908.71.

Despite an overall "neutral" view on the sector, the research house identified several names under its coverage that have the potential to outperform.

The recommended stocks are Sunway Bhd, OSK Holdings Bhd, Sime Darby Property Bhd, and IOI Properties Group Bhd with "buy" ratings and target prices of RM2.76, RM1.77, 81 sen, and RM2.50, respectively.

Shares of Sunway were up 0.94% at RM2.15 with a market value of RM11.83 billion while OSK increased by 1.73% to RM1.33, valuing it RM2.79 billion.

Sime Darby Property grew 3.05% to 68 sen, translating into a market capitalisation of RM4.59 billion. IOI Properties was unchanged at RM1.84, with a market value of RM10.13 billion.

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