Property Review: Downtrend presents accumulation opportunity (Feb 8 to 21)

• Property sector continued trending downwards

The property sector continued to be weighed down amid concerns of interest rate hike and credit tightening as seen in China. The KLSE Property Index closed 1.8% lower over the last two weeks. Property stocks under coverage have generally trended lower. SP Setia, Sunway City, Sunrise and Glomac have all retreated by 1.9% to 5.5% while YNH was marginally higher by 0.6%. With share prices falling, Employees Provident Fund (EPF) has again been seen accumulating SP Setia and Sunrise. Over the last two weeks, EPF has acquired 1.1 million shares in SP Setia and 1.5 million shares in Sunrise.

• Notable property news

There has not been much corporate news flow seen over the last two weeks, which include a two-day break for the Chinese New Year. Much of the news involves Mah Sing which has acquired a 19.2-acre land in Hicom Industrial Estate, Shah Alam for RM45.5 million or RM54.45 psf. It plans to launch a RM145 million industrial development known as iParc2@Shah Alam. The company has also exercised its option to acquire a 6.3-acre commercial land adjacent to its recently acquired Gardens Residence project in Cyberjaya for RM21.7m or RM79 psf. The company has also been quoted by the media to be eyeing the 20-acre former Lever Brothers’ factory in Bangsar.

Sunway City has finally took a firm step on its REIT listing by appointing investment advisers and book runners. Despite lack of details, we expect the asset value of the REIT to be between RM2.5 billion and RM3 billion based on a conservative cap rate of 8% and best case of 6.5% respectively. Also on REIT, Sime Darby Property Bhd, a unit of Sime Darby, is reportedly building its investment portfolio with the intention to set up a property trust with assets worth more than RM2bn in two to three years.

• Maintain OVERWEIGHT

Despite the continued downtrend in the property sector, we remained bullish as we believe investors’ concern on the impact of interest rate hike on the property sector 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. Among non-rated property stocks, we also like IJM Land and Mah Sing. On the other hand, Sunrise offers significant upside of 57% and recent strong sales from its MK 28 project will provide the re-rating catalyst in the months ahead.