We are upgrading the PROPERTY Sector to NEUTRAL from UNDERWEIGHT. The sector will be unexciting because of weaker fundamentals on the back of a tighter banking liquidity.
We also believe that the Malaysian property sector has hit peak demand after two consecutive years of >20% YoY growth in sales. But downside risk will be cap by 1) developers’ strong earnings visibility; 2) changes of sales mix towards the affordable segment plus Johor products will buck the general flattish trend and allow for decent sales targets; 3) the market has probably priced in the negatives in the sector; 4) Bank Negara unlikely to introduce further tightening measures. We reiterate OUTPERFORM on UEMLAND (TP: RM2.65) and UOAD (TP: RM1.65) while MARKET PERFORM ratings are maintained on SPSETIA (TP: RM3.90), IJMLAND (TP: RM2.28), MAHSING (TP: RM2.18).
We retained UNDERPERFORM ratings on E&O (Top UNDERPERFORM; TP: RM1.49) and HUNZA (TP: RM1.44). M-REIT and property investment remains as OVERWEIGHT as ‘flight to safety’ options given our 2Q12 house view of ‘top slicing’, with CMMT (OP; TP: RM1.55) and KLCC Property (MP; TP: RM3.45). Listing of IGB REIT will keep valuations high. The market’s anticipation of KLCC potentially REIT-ing some of its assets will also add excitement to the sector, although we believe it will not likely be in the near term (refer to our 21/3/12 report, “REIT-ing?”). Our 2Q12 Top OUTPERFORM is Axis REIT (TP: RM2.82) for 1) its strong acquisition pipeline, which allows for faster NAV growth and hence quicker realisation of its valuations; 2) limited office occupancy risks given its quality tenants; 3) there being less choices of good office/industrial REITs compared to retail ones and 4) its net dividend yield of 6.0% is higher than CMMT’s 5.5%.
4Q11 results were mainly within expectations, save for UEMLAND which exceeded our estimate. Developers enjoyed strong earnings growth of >40% for 2011 given their last two years’ strong sales. Hunza Properties was the exception with a sharp earnings decline of 30% as it had held back launches. Generally, the developers were able to meet their 2011 sales targets, implying a 10%- 50% YoY growth in sales. Meanwhile, property investment and M-REITs results under our coverage came in within expectations.
Weak fundamentals will keep the sector unexciting. The tighter mortgage assessment criteria was obvious over the last few months based on developers’ feedback and a sharp MoM drop in Jan-12 mortgage loans approvals. Whilst residential demand interest is still strong, loan approval periods have more than doubled. We also understand that bank valuations of properties, even for new launches, have been toned down, affecting buyers’ effective margin of financing. Many are not getting the full 90% margin of finance even for their 1st or 2nd homes, given the current residential margin of finance of 80%-85% for new launches. Interestingly enough, developers under our coverage have lowered their 2012 sales growth targets from their previous quarter’s guidance of 20%-60% to 5%- 50% now. Those with more bullish targets have 1) strong exposure to Johor (a market which we are very bullish on) with ready launches like UEMLAND and SPSETIA; 2) overseas projects like Australia, which are still enjoying favorable property dynamics like SPSETIA and 3) very highly specialized projects like UOAD, which are looking at potential en bloc sales of their MSC status buildings. Although it is too early to say we have seen the worse of the tighter banking liquidity given the limited data of just the Jan-12 month (policy was effective 1-Jan-12), we note that Jan-12 residential loans approval decline of 24% MOM was the sharpest is the last 12 months. We believe the situation will continue to persist until Bank Negara relaxes its responsible lending guidelines, although on the positive side, Bank Negara is unlikely to impose further tightening measures. Landbanking news flow is thin, which reinforces our view of a lacklustre year.
But strong earnings visibility will limit further downside risks. We do observe more mass housing and Johor landbanking, as well as launches in the affordable housing segment. We expect this trend to continue throughout the year as developers lean their earnings mix towards these products to realise sales targets. For now, their sales targets look achievable as developers will be rolling out variations of financing packages, while rebates are also here to stay. However, high volume mass housing sales also means less attractive margins. We will be monitoring the mass market closely as tighter banking liquidity seem to be hurting first home owners. Ironically, nearly 50% of applicants for the My First Home Scheme (100% financing for homes RM400,000/unit or less for first home buyers earning < RM 3000/month). That said, we think the market has priced in the bulk of the negative policy news and expect the sector to range bound at its Fwd PBV mean (KLPRP CY12 PBV of 0.8x @ 6-year average). Also, most of our developers (except for Hunza) have high unbilled sales providing strong earnings visibility of 1-1.5 years. Developers with good dividends, like UOA (4.6% net yield) and MAHSING (4.7% net yield), should limit their share price weakness, provided they are still able to meet their sales targets.
Source/Extract/Excerpts/来源/转贴/摘录: Kenanga Research