KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) has raised the property sector from Neutral to Positive and prefers developers over real estate investment trusts (REITS).
It said on Friday the preference for developers was due to the better risk-and-reward ratios and higher beta as investors' risk appetite picks up after the 13th General Election.
"We do not expect major changes in key policies for the property sector as federal and state governments for major markets (KL, Selangor, Penang, Johor) remained status quo post-elections," it said.
HDBSVR expected launches to resume while sales should pick up as uncertainty dissipates as both developers and buyers have been holding back for the past six months. It also expects project approvals to accelerate.
"These factors should help to re-rate the Malaysian property sector's valuation (price-to-book value of 1.0 times, price-to-realised net asset value (P/RNAV) at 0.6 times) which is currently hovering between historical average and one standard deviation.
"Developers have been major laggards (until recently) compared to MREITs which outperformed last year. The recent run-up in the KL Property Index was mainly driven by Iskandar Malaysia beneficiaries but should now broaden out to other segments," said the research house.
HDBSVR upgraded E&O and YTL Land to Buys from Holds, and raised target prices across the board by 6%-63%.
For big caps, it prefers laggards SP Setia (Battersea is a game-changer to double earnings) while MRCB stands to benefit from PJ Sentral which could be the next KL Sentral.
For exposure to Iskandar Malaysia, the research house sees more value in small-mid caps like Crescendo and Daiman versus UEM Land after the recent strong rally.
HDBSVR foresees potential competition from new players like IOIProperties and other Khazanah-led vehicles seeking listing. They include Iskandar Waterfront, Medini Iskandar, Themed Attractions.
For KLCC stapled security, it had factored in the potential injection of Suria mall into the REIT which will boost its sum-of-parts by 17%.
YTL Land : Niche developer with highest exposure to potential MRT interchanges. Regional player in Klang Valley, Penang and Singapore.
Eastern & Oriental : Niche high-end developer with exposure to prime landbank in Penang, KL & Iskandar Malaysia.
Wing Tai Malaysia : Niche high-end developer in KLCC. Also has exposure to mass residential in Penang.
Daiman : Among cheapest pure Iskandar Malaysia play. Highly leveraged to robust demand for affordable housing & JB hotel.
Crescendo : Among cheapest pure Iskandar Malaysia play with attractive dividend yield. Highly leveraged to industrial & affordable housing.
KLCC Property : Largest commercial property owner in prime KLCC with resilient earnings. Largest MREIT by market cap & asset size.
SP Setia : Sector leader - largest residential property developer by sales. Battersea will be a game-changer to double up earnings.
UEM Land : Master developer of Nusajaya and largest landowner in Iskandar Malaysia. Also largest landowner in Mont Kiara.
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