The research house had on Tuesday maintained neutral on the property sector it does not anticipate earnings surprises in the short to medium term.
“Our top picks for the sector are: (1) Sunway Bhd (Buy, FV: RM1.94) given that its local and overseas property launches have been generally well received due to good locations, and diversified income base; and (2) IOI Properties Group (Buy, FV: RM1.89) which is banking on a strong contribution from its property development projects, particularly in China and Singapore.
“We are keeping our Neutral view on REITS given their high valuations and advise investors to Buy on weakness,” it said.
AmInvest Research said the results of the companies under its coverage were largely in-line as out of the 12 companies under its coverage, seven came in within expectations, one above expectations and four below expectations.
For property developers, IOI Properties came in above expectation with strong contributions from projects in China and higher earnings from JVs arising from the sale of South Beach Residences in Singapore.
ECO WORLD Development Group (EcoWorld), Mah Sing Group, S P Setia, Sunway and UEM Sunrise came in within expectations while MRCB, Sime Darby Property (SimeProp) and Titijaya Land (Titijaya) were lower than expected.
Mah Sing (-20% on-year) and Titijaya (-50% on-year) registered lower earnings YoY as their projects are still at early stages and it expected them to recognise stronger revenue in the coming quarters once their projects pass the initial stages of construction.
MRCB’s 1QFY19’s earnings fell by 80.8% mainly due to lower revenue recognised during the period as a result of the deferment and retiming of income recognition from the LRT3 project.
Sunway (+58% YoY) and SimeProp (+57% YoY) managed to achieve stronger new sales YoY while IOIPG’s sales were similar to the previous year’s level. Other developers generally reported lower new sales YoY.
“Hence, we do not expect to see surprises in earnings for the next 12 months. Developers are more aggressive in clearing unsold units by offering discounts whereby inventory level is on a declining trend. We believe this is a positive move to realise cash flow.
“For REITs, Pavilion REIT (PREIT) and Sunway REIT (SREIT) came in within expectations while YTL Hospitality REIT’s performance (YTLREIT) was below expectations. YTLREIT registered lower earnings mainly due to its Australian properties as a result of a refurbishment exercise at the Brisbane Marriott and a weakening Australian dollar against the ringgit.
“We expect the outlook for retail properties, especially shopping malls, to remain stable in the short to medium term. This is demonstrated by PREIT (HOLD, FV: RM1.81) and SREIT (HOLD, FV: RM1.87) whereby both have high occupancy rates in their shopping malls.
“We believe the high occupancy rates are also due to strong management and brand names of the REITs, in addition to shopping complexes becoming one-stop centres for the Malaysian lifestyle providing F&B and entertainment options,” AmInvest Research said.
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