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RHB Research remains positive on property sector but sees volatile market ahead

KUALA LUMPUR: RHB Research said while it remains positive on the sector, it  is not bullish particularly in the coming 2Q11 considering the volatile market ahead.

It said on Friday, March 18 the property sector is known for its cyclical and high beta nature, and it is not a heavy weight component in the FBM KLCI.

“For sector exposure, low beta property stocks are preferred, such as Paramount and Mah Sing. REITs also could turn in favour due to their defensive yields,” it said.

RHB Research said it was appropriate for investors to go for selective high beta stocks only if there is a strong project flow.

“In 2H11, key events to watch out for is the results for the tenders by developers for the Rubber Research Institute land, MRT’s “rail plus property” that Prasarana will develop with JV partners, and the official award of the development of land parcels in Singapore,” it said.

The research house said the biggest beneficiaries include MRCB, Ekovest (for river cleaning project) and UEM Land.

The key surprise will be the JV winners in particular for the RRI land, which we think are likely to be the GLC-linked reputable developers. The best bets are SP Setia, IJM Land and Mah Sing.

“We believe the M&A catalyst for the sector still exists. Speculation will be centered on “who is next” to merge with MRCB, after the deal to merge with IJM Land lapsed.

“Similar to ULHB/Sunrise (a property arm of Khazanah), MRCB is the “so-called” construction/property arm of EPF, but MRCB is lagging behind in its property development and brand name. In addition, by merging with a reputable developer, its valuations are expected to normalise to a reasonable level in hopes of better fundamental grounds,” it said

RHB Research believed catalysts for the small cap property stocks are limited after a short rally in early 2011.

It lowered its fair value on Glomac and YNH. As for KSL, the stock is still largely undervalued (at 60% discount to RNAV) considering that it has just received its approval for its Bandar Bestari township project in Klang.

“Overall, as we are keeping our calls on big cap stocks, we maintain our Overweight rating on the sector. Our top pick is Mah Sing,” it said.

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