THERE has been greater interest in property stocks not only among local investors but also foreign investors, who have placed greater ratings on these counters based on their performance on the local bourse.
Analysts say foreign fund managers, however, are still underweight in local property stock investments. As such, there is good upside potential in the next one to two months.
Although the recent correction on the Malaysia Securities Exchange has affected some property counters, analysts expect property stocks to be among the first to recover.
According to Avenue Securities Sdn Bhd research analyst Chan Ken Yew, many of the foreign funds are bullish about the Malaysian stock market in general because it is one of the most stable in Asia.
He said that although there were fears of US interest rates being raised, he expected the Government to maintain Malaysia's interest rate level because “with the ringgit pegged against the depreciated US dollar, we still have the buffer to reduce interest rates.”
“Maintaining the interest rates will narrow the interest differential between the ringgit and the US dollar, and this will ease the pressure of having to re-peg or appreciate the ringgit,” he told StarBiz.
Chan added: “Malaysia is in a unique position. With the ringgit pegged against the US dollar, there is no exchange rate risk from the US interest rate rise. In that sense, we are quite independent of the US' monetary policy.”
Many of the star performers in the property sector are established property companies offering high liquidity and trading volumes, and they have rung up rather substantial gains in the market run-up seen in the last five to six months.
To attract more attention to their counters in this competitive market, many of the smaller and medium capitalised companies are also making a beeline overseas, going on road shows to major financial centres in the US, Europe and Asia to explain to foreign fund managers their plans, product offerings, sales and earnings records and prospects.
A fund manager with a local brokerage said companies which made an effort to reach out to their investors would find themselves better understood and would also have a better opportunity to get into the latter's radar screen.
For those with investment overseas, fund managers may also be invited for site visits to these facilities or development projects to get a firsthand look at the offshore investment.
“Ultimately, how far a company will go to create awareness for itself can make a difference between being a favourite stock or a laggard in an active market,” she said.
A senior investment analyst with a foreign brokerage, who just got back from a road show in Hong Kong, said investors had shown greater interest in the local property counters and response from the foreign fund managers had been really good.
“The large foreign funds usually go for companies with sizeable market capitalisation and trading volume, but now they are also showing greater interest in some of our medium cap companies as they offer good upside potential. Basically, they are looking for new shining stars to invest in,” he said.
By going on these road shows, the Malaysian companies have begun to create a bigger audience for themselves overseas and raise their profiles in the eyes of fund managers.
Companies such as SP Setia Bhd, Glomac Bhd, MK Land Holdings Bhd, IOI Properties Bhd and LBS Bina Group Bhd have been on the pedestal for sometime now, and the newer kids on the block that have potential to shine include Sunway City Bhd (SunCity), RB Land Holdings Bhd (formerly Econstates Bhd) and Mah Sing Group Bhd.
SunCity, which has almost completed its corporate restructuring exercise, is making a comeback by going on road shows after being out of the radar of fund managers since the company plunged into debts following the regional financial crisis.
An analyst with a foreign research house said SunCity was well positioned to capitalise on the strong demand for middle- and high-end residential products and well-located commercial properties.
“We expect the company to continue divesting its low-yielding assets, including Australian property assets, and the cash generated will be used to pare down debts as well as for new land acquisitions,” he said.
The disposal of its Wonderland theme park in Sydney for A$52.5mil would save SunCity RM20mil a year in losses and give interest savings and a comfortable net gain from foreign exchange translation.
With its attention now focused just on its forte of property development and investment, the earnings growth going forward will be in the strong double digits. This will be aided by its good land bank, as most of its 2,500 acres is located in the Klang Valley.
For the current financial year ending Dec 31, SunCity has lined up properties worth more than RM1bil for launch.
RB Land had recently emerged with a new lease of life as the listed property arm of Road Builder (M) Holdings Bhd following the completion of a restructuring exercise of its former entity, Econstates Bhd.
From being a single hotel owner of the 383-room Holiday Villa in Subang Jaya, the company has transformed into a full-fledged property developer after the exercise and is set to record a quantum earnings growth of between eight and 10 times.
With a land bank of some 4,000 acres in Seremban and Shah Alam, the company is looking to make further inroads in the robust Klang Valley market to achieve its target of becoming one of the top tier property companies.
Going on road shows will help to raise RB Land's profile and help investors to better understand its plans ahead as a serious property player.
Another interesting property counter, which has attracted greater investor interest, is Mah Sing. The company is building up its land bank of 624 acres, which has the potential to generate sales of RM1.5bil, to make bigger inroads into niche lifestyle products.
For the current financial year ending Dec 31, it has set a sales target of RM400mil and this is expected to jump to RM550mil in 2005.