Maybank Research neutral on property sector, Eco World top buy

Eco World Bhd will hold a 27% stake in Eco World International under its IPO

KUALA LUMPUR: Maybank Investment Bank Research (Maybank IB) is retaining its Neutral outlook on the property sector with Eco World Bhd as its top pick due to its strong management team which has a proven track record, and its more balanced product mix.  

It said on Monday while sector fundamentals remain weak with rising unsold stocks and properties on auction, the pick-up in sales and mortgage loan applications and approvals could be signaling a bottoming in the property sales downtrend. 

“There still remain a passage of time for supply/demand to rebalance and we expect the sector to only recover from 2H18. We maintain Neutral on the property sector,” it said.   

Mortgage applications continued to rise at a double-digit pace for the fourth consecutive month (+16.6% on-year in May 2017, +21.3% in April, +19.6% in March) while approvals have expanded at a double-digit pace since March 2017 – a nascent sign of bottoming in the property sales downtrend. 

“Our ongoing discussions with the bankers revealed that they are now more willing to lend particularly to the affordable home segment despite still being cautious on their exposure to the sector,” it said.   

Maybank IB Research said supply remains the key concern. Unsold units continued to shoot up +48% on-year and +18% on-quarter in 1Q 2017 while properties on auction rose +14.4% YoY (sources: AuctionGuru.com). 

Stiffer competition has prompted property developers to seek out innovative marketing schemes or offer discounts to clear unsold stocks. 

Also, developers are now more involved in the affordable housing segment. 

“Hence, we expect further blended margin erosion in the coming quarters, which we have incorporated in our earnings models for stocks under our coverage.    

“We expect a L-shaped recovery in the property sector in view of the oversupply issues. The sector lacks strong re-rating catalysts. 

“We now expect the sector to only recover from 2H 2018. We advise investors to be selective on stocks, focusing on developers with right and attractive products and with strong ability to secure sales,” it said.