More upside for property stocks on MRT excitement?

KUALA LUMPUR: With the recent unveiling of the proposed alignment for the Sungai Buloh-Kajang Mass Rapid Transit (MRT) line, a clearer picture has emerged of the early big winners from the expected gains from key property projects along the public transport infrastructure. While the stocks of property players with projects along the MRT line have surged of late, most analysts remain bullish on them.

At a press briefing last week, HwangDBS Vickers Research associate director Yee Mei Hui named five top picks for property developers which she said are key beneficiaries of having MRT stations near their respective property projects.

The five picks are YTL Land and Development Bhd, Selangor Properties Bhd, GuocoLand Malaysia Bhd, Bolton Bhd and S P Setia Bhd.

The prices of these five stocks have surged to three-year highs in mid-January with increased trading activity around the period. (see chart) Many of these stocks had also climbed after the Sungai Buloh-Kajang alignment was put on public display from Feb 13.

Another beneficiary, Malaysian Resources Corp Bhd (MRCB), has also seen its share price hit a three-year high of RM2.36 on Jan 13.

MRCB is widely expected to participate in the mega development of the 1,320ha Rubber Research Institute of Malaysia (RRIM) land in Sungai Buloh, which has been allocated an MRT station.

According to Yee, the main winners are likely to be companies sitting on a large land bank near MRT interchanges within the Kuala Lumpur city centre, particularly parcels suitable for high density development.

The other potential winners are property developers with strong balance sheets and track records in high density developments as these companies would have an upper hand in bidding for the MRT stations, Yee said.

RHB Research Institute senior analyst Loong Kok Wen said valuations are richer for big property players, especially after the recent runup in property stock prices from early this month.

Loong warned that since market sentiment was still quite weak, any reversal could affect property stocks as these counters had rallied since the start of the year.

"Investors should be very selective when buying property stocks, if possible go for the cheaper valuations stocks," Loong said.

Maybank Investment Bank Research analyst Wong Wei Sum said there would likely be more upside to property stocks given that the other lines which would be part of the MRT system had yet to be finalised or announced by the government.

The government is expected to soon announce the proposed alignment for a circle line that would orbit key areas within the Kuala Lumpur city centre and another alignment to serve areas that are not currently served by the Light Rail Transit (LRT) system.

Wong said stock prices should be driven higher when more news emerges on the other MRT lines in the future.

Another property analyst, who declined to be named, opined that there was still a lot of upside for property stocks as the potential gains had yet to be priced in.

"The government says the MRT project will begin construction in July. Once you see it really kick-started then it's a good time to enter. Of course, you can buy in earlier but the risks are still there", said the analyst.

Meanwhile, Yee said land value in key hotspots — Pusat Bandar Damansara, Sentul, KL Sentral, KL Eco-City and KLCC-Bukit Bintang — could increase between 11% and 35% per annum over the next three to five years.

"Although the MRT's completion is only expected in 2016, I believe most developers will already start pricing in the potential MRT so you start to see property prices moving up," Yee said.

Yee said three mixed developments, mainly S P Setia's KL Eco-City, YTL Land's Capers in Sentul East and GuocoLand's Damansara City project, stand to be the immediate beneficiaries of the MRT system.

"The successful launch of these projects will set the tone for other MRT-related launches which will mark very interesting times ahead for the property sector," she said.

Asked if there was over optimism in the property sector's expected gains from the MRT, Yee said there would be more winners than losers in the long run with the MRT system.

"There will be some properties affected by the alignment but generally, it is a very positive thing.

"We should see an appreciation across the board for most properties, more so for properties near MRT interchanges which tend to get a premium of above 20% to 30%," she said.

What then of property developers who are without strategic land bank situated near proposed MRT alignments or MRT stations? Yee said the MRT project could spark more joint ventures or mergers and acquisitions among property developers, especially those with an attractive land bank or companies which are currently undervalued.

"For those without land banks, they'll need to act quite fast," Yee said.

Looking for properties to buy or rent? With >150,000 exclusive listings, including undervalued properties, from vetted Pro Agents, you can now easily find the right property on Malaysia's leading property portal EdgeProp! You can also get free past transacted data and use our proprietary Edge Reference Price tool, to make an informed purchase.