Property stocks regaining lustre?

KUALA LUMPUR: Property stocks may be regaining their lustre as sales showed a pickup in the second quarter (2Q) of the year, fuelling hopes developers could make a turnaround in earnings faster than expected.

According to ECM Libra Research, the KLCI property index had gained 4.9% in June, with all property stocks under its coverage in positive territory.

 However, total property sales in 1Q09 recorded a 30.6% and 11.1% year-on-year and quarter-on-quarter decline, respectively, to RM16.9 billion.

“Despite the lower sales numbers in 1Q09, we expect better performance in 2Q09, especially in residential properties, judging by the increasing property loan approvals up to June 2009,” it said.

The Main Market Properties Index fell  0.05% or 0.35 point to 769.58 points yesterday, after gaining 8.53 to 769.93 points on Tuesday. The FBM KLCI fell 0.03% or 0.39 point to 1,179.49 points.

Among yesterday’s gainers, Naim Holdings Bhd rose 23 sen to RM2.64; Sunway City Bhd (SunCity) gained 14 sen to RM3.38; Crescendo Corporation Bhd rose three sen to RM1.05; while Eastern & Oriental Bhd closed four sen higher at RM1.20.

On Tuesday, Naim and SunCity added 14 sen and two sen to RM2.41 and RM3.24, respectively.

In a recent note, HwangDBS Vickers Research said signs showed the return of demand for high-end properties, with project launches in Kuala Lumpur and Penang having been well received.

“Developers are more confident now to resume launches, which should lead to faster earnings recovery. Selling prices may soon be raised and incentives gradually pulled back, resulting in margin expansion for developers,” the research house said.

It said of recent launches by developers including DNP Bhd, IJM Land, E&O and S P Setia, between 60% and 100% of each project had been taken up.

On another note, the research house said the government’s recent liberalisation measures should boost both foreign and local demand for Malaysian properties.

The government had also recently launched Malaysia Property Inc, a joint public-private sector initiative to promote Malaysia as a preferred international real estate destination, targeting RM200 billion foreign direct investments in the property sector here over the next 10 years.

“All these measures should help to narrow the pricing gap between regional and Malaysian properties, which are currently discounted 90% compared to Singapore and Hong Kong, and improve liquidity with increased participation from international investors,” HwangDBS said.

It also said the Malaysian property sector’s average price-to-book value of 0.71 time was still 10% below its historical mean of 0.78 time.

Its top picks are S P Setia and E&O, with a target price of RM5 and RM1.50, respectively.

ECM Libra Research was, however, not as upbeat on the sector, despite the encouraging signs. “Our neutral call on the sector remains as we do not think there is sufficient impetus for a bull run so soon after the global economy literally grinding to a halt,” it said.

Its top picks are SunCity (target price RM3.69), due to its resilient property investment earnings with potential upside from recovering property development earnings, and Sunrise (target price RM2.85), due to its strong brand name and prime landbank.

This article appeared in The Edge Financial Daily, August 6, 2009.
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