Strategy Outlook- Malaysia 2014
“Uncertainty to Loom”
Property sector is NEUTRAL to us as higher cost of living, the risk of tighter lending requirement and harsh measures under the Budget 2014 could temper buying sentiment. S&P Setia (Hold: TP: RM3.51) is our top pick as the imminent departure of Tan Sri Liew Kee Sin is likely to cause only a small ripple.
Sell-down was over. Pre-Budget 2014‟s announcement, property stocks hit the snag as the policy to cool the property prices has led a massive sell down in property stocks. The sell down which started in September had badly impacted the developer especially those that has large property exposures in Johor area. It would take at least couple of months for the developers and buyers to adjust with the regulatory changes.
Value has emerged. We foresee as a result of the recent sell down, value for these developers has emerged as large cap developers‟ valuation are trading below their long term average. Large cap property developers under our coverage namely SP Setia, Mahsing and UEM Sunrise are trading at PER of 15.35x, 10.56x, and 14.24x , suggesting limited downside risks to the current share price.
More ruling introduced? We are not surprised by BNM‟s additional measures to further cool property prices by halting the interest capitalization scheme (ICS). The news definitely put more cold water to the developers as developer‟s interest-bearing scheme (DIBS) has been ceased by BNM during Budget2014 announcement. Under the ICS, financial institutions are able to grant end-financing facilities to individuals or non-individuals. Following the cessation of ICS scheme, financial institutions are barred from granting a bridging facility to finance a property development that offers ICS.
Low credit cost. Despite the negative news flow in property sector, all is not lost for the sector as cheap borrowing costs offered will be the key catalyst for the sector despite stringent requirement set by both BNM and banks. Notwithstanding that, interest rates are still affordable as some banks offer BLR minus 2.4%, from BLR minus 2.1%-2.2% a year ago. The key to the outlook of BLR is OPR of which we think it will be status quo next year.
Rerating catalyst. Although we expect BNM to impose harsh measures during announcement, we view the major catalysts for property sector are; 1) harsh measures got escaped is the key catalyst for property sector, namely increase in stamp duty for second house, reduction in loan-to-value (LTV) and property valuation fee, 2) land banking activity getting alive again 3) spill over impact from construction projects announced in Budget 2014
Impact to banking and loans growth. The new measures to curb rising household debt and rising property price is less certain at this juncture, however we believe 3 local banks will be affected in the medium run with the new ruling namely Public Bank, Hong Leong Bank and Alliance Financial Group. The mortgages loans (including non-residential) for these banks represent more than 50% of total loans, hence the slowdown in mortgages‟ loans application will contribute to slower growth target. However we foresee the asset quality remains intact as these banks have stringent asset quality control.
Effectiveness of cooling measures? With the removal of DIBS, we will see a slowdown in primary properties launches over the medium term period as developers are in period of adjusting with the removal. However, we note that many large cap developers have slowed down and some of them has ceased the DIBS since the early of this year. Additionally, the impact of DIBS removal is more severe than initial thought as speculative buyer will try to avoid the primary property market, thus will hammer the properties launches reception.
Conclusion and recommendation. It will be a period of consolidation for property players in 2014. Harsh measures in Budget 2014 will directly hit players and buyers alike, nonetheless, all is not lost as we believe demand for property will remain resilient especially in Greater KL thanks to ETP mission to increase the population of KL citizenry from 6 million to 10 million people by 2020. KL needs to house 1 million new homes by then which means that property players will be busy by then.
Source/Extract/Excerpts/来源/转贴/摘录: M & A Securities
Publish date: 07/01/14