Stay defensive on property sector

Maybank IB Research has SP Setia as its top pick

KUALA LUMPUR: The outlook for the Malaysian property sector has turned somewhat sour, with cuts in sales targets, delays in new launches, and rescission of land deals among local developers becoming the order of the day.

Seeing a lack of strong re-rating catalysts, Maybank Investment Bank Research recommends investors to stay “defensive” on the sector.

The brokerage had maintained a “neutral” outlook for the Malaysian property sector, with SP Setia Bhd as its top stock pick.

“Our ongoing discussions with industry players point to property sales remaining slow,” Maybank Research said in its report on Thursday.

“While some projects have shown some signs sales stabilisation, there are no signs of a pick-up,” it wrote, adding that most developers were cautious and were switching to a defensive mode.

According to Maybank Research, Sunway Bhd and Glomac Bhd would likely revise down their sales targets.

“The rise in living costs, alongside the weaker stock market and currency, are factors that will continue to weigh on buying sentiment, and thus property demand, which we think will only recover towards the second half of 2016,” the brokerage argued.

Maybank Research had earlier already cut its earnings forecast for UEM Sunrise Bhd by 6%-7% for the financial years ending Dec 31, 2015, and 2016. But the target price for UEM Sunrise was raised by 11% to RM1.10 on new share placement plan, with redeemable, convertible preference shares. The brokerage had a “hold” call on UEM Sunrise.

It noted that during the August to September 2015 results season, Malaysian property developers displayed a mixed-bag performance, with SP Setia beating expectations, while Eco World Development Group Bhd underperformed.

“As for other developers under our coverage, results were in line, backed by huge unbilled sales accumulated over the last two years,” it said.

Among the key trends observed in the second and third quarters of this year, said Maybank Research, were higher marketing costs, hence, lower operating margin; lacklustre sales performance, with most either failing to meet or cutting sales target, except for Eco World, and delays in property launches; and rescission of land deals, notably by Mah Sing Group Bhd and Tropicana Corp Bhd.