A cooler property market

Property sector
Maintain neutral: The property market in 2011 maintained double digit growth of 14% y-o-y in volume, and 28% y-o-y in value (430,403 transactions worth RM137.8 billion).

Market activity for all subsectors was active, led by residential and development land which grew by 19% and 15%, respectively, followed by commercial (10%), industrial (7%) and agricultural (5%).

Property sales are expected to slow down in 2012 due to the uncertain global economic outlook as well as the stricter lending guidelines introduced by Bank Negara Malaysia in January.

The implementation of the 70% maximum loan-to-value ratio for financing the third house could contribute to the slowdown as well.

While most developers announced several new project launches and higher property sales targets for FY12 at the start of the year, we have observed that some have deferred launches and guided a lower sales target in anticipation of a softer demand.

However, we await the release of the property companies' 1Q12 financial results (due this month) to have a better gauge of their sales performance.

However, loans approved by commercial banks for the purchases of both residential and non-residential properties rose sharply between January and March 2012.

Although there was a significant 26% m-o-m drop in January's approvals for residential loans, we reckon that was due to the shorter working days brought about by the Chinese New Year holidays.

Residential property loan approvals in February and March grew m-o-m by 25% and 19% respectively to RM6.8 billion and RM8.1 billion.

Based on industry checks, demand for property, especially residential, remains stable. We understand that buyers are adopting a wait-and-see approach, but certain types of residential property (landed homes) in select locations (the Klang Valley, Penang and Johor) are high in demand.

UEM Land Holdings Bhd: We view positively its progress and developments in Nusajaya, Johor, which should reach the "tipping point" by end-2012.

However, we are concerned over Nusajaya's ability to attract sufficient human traffic to the area as well as the sudden increase in development projects in Iskandar Malaysia.

Maintain "hold" on UEM Land with a revalued net asset value-based target price of RM2.25, which presents 11% upside. At the current price, the stock is trading at 23.7 times price-earnings ratio (PER) for FY12F.

Sunway Holdings Bhd: Maintain "hold" on Sunway with a target price of RM2.65, derived from sum-of-parts valuation method.

We are positive on Sunway's medium- to long-term earnings visibility through its property development projects, construction order book of RM3 billion, and stable recurring income from property investments and REIT (36.7% stake in Sunway REIT). At the current price, the stock is trading at 7.1 times PER for FY12F. — ECM Libra, May 11