KUALA LUMPUR: Valuations of counters on the KL Property Index are near rock bottom with many developers trading well below their book values, said Kenanga Research.
It said its universe's average real net asset value (RNAv) discount is now at 63.4% or close to its historical peak level of 68.5%.
"This could be a primer for potential M&As or even privatisation plays, although we have yet to hear any market whispers.
"While valuations appear compelling, we believe there are issues weighing down the sector, with no clear catalyst in sight," it said in its Friday report, which reiterated its neutral rating on the sector.
Kenanga cited issues such as deterioration in developers' return on equity (ROE), which is more severe than the supporting industries, construction and financials, and ROE trends.
It added that more clarity is needed on the new affordable housing policy, definition of affordable housing, easing of lending requirements for first-time home buyers and the new government's promise to deliver one million affordable homes.
"We expect most developers’ share prices to range-bound at current levels pending the Budget-2019 announcement (2-Nov) or if there are earlier announcements on housing policies or lending requirements."
The research house's top pick is UEM Sunrise
with an outperform rating and a target price of 97 sen.
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