Property – Malaysia
Tightening Down South..
The Johor state government recently announced that it is increasing the foreigner property processing fee from RM10,000 per transaction to 4-5% of property value from Jan 14 onwards. Other than the direct Iskandar proxy UEM Sunrise, companies within our coverage will not be significantly impacted by this new measure that the state has embarked on. Maintain MARKET WEIGHT with Sunway as our top sector pick.
• A new state-specific cooling measure in place. The media reported that the Johor government is increasing the property processing fee from RM10,000 per transaction to 4-5% of property value for foreign buyers. This new measure would take place from Jan 14 onwards. We believe that this announcement is a prelude to a slew of measures to cool down the property market that is expected to be introduced during the 2014 Budget, including increasing the Real Property Gains Tax (RPGT) and the stamp duty charges.
• The National Property Information Centre (NAPIC) recently published the residential property market report for Malaysia and the respective states. As of 2Q13, we saw transaction volumes and values climbing especially within the Iskandar market. From 1Q13 to 2Q13, transaction volume and values climbed by about 13.2% and 30% for Johor.
• Maintain MARKET WEIGHT on the sector, and believe that the sector’s performance would be dampened by more tightening measures and the anticipated consumption slowdown, which is tied to various reduction in government subsidies. For now, we maintain BUY on Sunway (Target: RM3.39) due to its reasonably cheap valuation (10x 2014F fully diluted earnings). Although the Government of Singapore Investment Corporation (GSIC) recently pared down its stake in the company, we understand that the major acquirers of the shares are Malaysian Government-linked funds, which are generally long-term investors. Also, if a slowdown in take-up happens, Sunway’s earnings will still be supported by its strong construction business and stable recurring income from its REIT division.
• Nevertheless, selected thematic plays could provide trading opportunities such as M&A, selective Iskandar plays and value creation from the opening of the second Penang bridge. This includes Eastern & Oriental’s Medini Wellness Centre (Total GDV: RM3.5b), which has attracted more than 1,000 registrants for its Phase 1 development that offers only 208 units of landed properties that is due to be launched by year-end. We also maintain BUY on Malaysian Resources Corporation Bhd (MRCB/Target: RM1.70). We believe the merging of MRCB-Gapurna would create synergistic value for both firms.
• Expect near-term pullback. We also expect near-term softness in notable large caps in the likes of UEM Sunrise and SP Setia before the tabling of Budget 2014.
• Johor set to increase foreigner processing fees. The media recently reported that the Johor state government is going to increase the foreigner property processing fee from RM10,000 currently to 4-5% of the property value. The higher fee is expected to take effect from Jan 14 onwards. With this new measure, we do not discount the possibility of the pace of foreigners buying into Johor to increase in the run up to the start of this new measure.
• Iskandar makes about a third of GDV for most developers. Amongst the companies within our coverage, UEM Sunrise has the largest exposure to the Iskandar property market with over 80% of its GDV concentrated within Iskandar. Slightly away from the limelight, Sunway and Mah Sing have about 31% and 23% of its GDV coming from Iskandar projects. Hence, we believe that other than the direct Iskandar proxy UEM Sunrise, other companies within our coverage will not be significantly impacted by this new measure that the state has embarked on.
Publish date: 10/10/13