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Maybank IB Research upgrades property sector to 'neutral', sees fragile recovery ahead

KUALA LUMPUR (Dec 8): Maybank Investment Bank (Maybank IB) Research on Wednesday upgraded the Malaysian property sector to "neutral" (from "negative") after the share prices of property stocks under its coverage have retreated by 10% to 20% to more realistic valuations.

Maybank IB analyst Wong Wei Sum said in a note Wednesday that while 2022 property sales should perform better as the economy is recovering, she remains cautious on 2022 earnings/sales outlook as the fragile recovery in the sector could be upset by higher raw material costs and potential interest rate hikes as well as political uncertainties ahead of 15th general election.

She also thinks the positives have been priced in at current valuations.

“We advocate investors to be selective and prefer sector leaders like S P Setia Bhd for its undemanding valuations and diversified product portfolio,” she said.

Wong also noted that the National Property Information Centre (NAPIC) statistics in the third quarter of 2021 (3Q21) continued to show positive signals.

Citing NAPIC data, she said property sales value for the residential sector has rebounded after the decline in 2Q21, rising 20% quarter-on-quarter (q-o-q) to RM17.8 billion, while unsold stocks continued to improve, falling by 60.6% q-o-q and 59.8% year-on-year (y-o-y) to 46,889 units in 3Q21, thanks to aggressive marketing packages by the developers.

In total, she said sales for the first nine months of 2021 (9M21) increased by 16% y-o-y to RM52.4 billion, which were close to 9M19’s RM52.8 billion (pre-Covid).

“Based on our conversations with developers, sales momentum is expected to pick up in 4Q21 post-economy reopening and most developers expect a better sales outlook in FY22 though this may be coming at the expense of lower margins on moderated pricing,” she said.

Meanwhile, 75% of the listed developers under her coverage (S P Setia, Sime Darby Property Bhd, Mah Sing Group Bhd, Tambun Indah Land Bhd, Sunway Bhd, UEM Sunrise Bhd [UEMS]) have reported on their latest financial results as of Nov 30, 2021.

Wong said of the six developers, one result was above expectation (Mah Sing), three below expectations (Sime Darby property, UEMS, Sunway), while Tambun Indah Land and S P Setia were in line.

“While earnings were largely dragged by the imposition of lockdown and stricter standard operating procedures (SOPs) that had led to slower work billings between June to August, sales remained strong thanks to higher acceptance of digital marketing platforms,” she said.

She also said all the developers achieved stronger-than-expected sales in 3Q21 and are looking to exceed their initial sales target for FY21.

She maintained "hold" calls on Sunway (target price [TP]: RM1.72), S P Setia (TP: RM1.43), Sime Darby Property (TP: 69 sen), UEMS (TP: 35 sen) and Tambun Indah (TP: 81 sen).

She also maintained "sell" calls on Eco World Development Group Bhd (TP: 93 sen) and Mah Sing (TP: 66 sen).


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