Property Review: Acquisition trail continue (March 8 to 14)

Rise for 3 consecutive weeks
The property sector has now posted 3 consecutive weekly gains since market correction hit a bottom in mid February. The KL Property Index posted a 1.3% gain last week. On major shareholding changes, Employees Provident Fund (EPF) reported net accumulation of 2.5m shares in SP Setia.

• Developers continue to acquire landbank
There were several notable property transactions last week. Al-‘Aqar KPJ REIT has proposed to acquire six properties, including Kulim’s 16-storey Menara Ansar in Johor Bahru, for a total value of RM302.9m.

The purchase consideration will be satisfied partly by RM181.8m cash and RM121.2m via the issuance of 123.6m new units in Al-‘Aqar at an issue price of RM0.98. Four of the properties are hospitals, of which two are in Indonesia. UOA REIT may acquire Tower Block B at Menara UOA Bangsar and Wisma UOA Damansara II, together with a piece of land, for a total RM500m after it received offers for sale from UOA Holdings.

TA Enterprise has proposed to inject its Swisshotel Merchant Court Singapore to 69.66% owned subsidiary TA Global for RM651.8m. SP Setia’s expansion into Vietnam gained further traction following the procurement of an investment certificate for its Eco Xuan Lai Thieu project in Ho Chi Minh City. Besides SP Setia, another Malaysian company has also announced expansion plans in Vietnam last week.

Gamuda announced plans to acquire a 60% stake in a 203.9-acre property development in Tan Phu District, Ho Chi Minh City, Vietnam for USD82.8m (RM275.3m). The project, which has GDV of RM6bn, will be launched on a fast-track basis in 2HCY2010.

• Maintain OVERWEIGHT
We remain bullish on the property sector, in particular the residential subsegment, as we believe investors’ concern on the impact of interest rate hike has been overblown. We hold the view that interest rate hike will be gradual and minimal. Further to that, property sales is driven more by sentiment, which remains buoyant, rather than interest rate alone. We like the residential sub-segment on expectation of higher sales in CY2010 amid still low interest rate and improving sentiments.

Our top picks are Sunway City and SP Setia. The former may also have re-rating catalyst as its REIT listing gain further traction. Among non-rated property stocks, we also like IJM Land and Mah Sing. On the other hand, Sunrise offers significant upside of 55% and recent strong sales from its MK 28 project will provide the re-rating catalyst in the months ahead.