PETALING JAYA: The property sector is expected to record stronger earnings in 2023 on a year-on-year (y-o-y) basis, backed by developers’ strong unbilled sales and increased property launches.
Upgrading its view on the sector to “market weight”, UOB Kay Hian Malaysia Research (UOBKH) said improvement in labour supply, easing of raw material prices and pent-up demand may also continue to lead earnings recovery next year.
The sector would also benefit from the absence of the one-off prosperity tax next year.
UOBKH projected the property sector’s earnings to grow by 14% y-o-y in 2023 compared with 38% this year.
However, the research house cautioned that interest rate hikes and rising cost of living may remain as headwinds for the property market.
Uncertain prospects of the industry are already reflected, with the sector trading at an undemanding valuation.
“Despite the depressed valuation, it will be challenging to further re-rate the sector’s valuation without any notable near-term catalysts, given the lingering long-term structural issues such as oversupply and affordability.
“Companies that have exposure to industrial properties and overseas projects will be in a better position than their peers,” UOBKH said in a note.
The research house highlighted that there is growing global demand for industrial land, driven by electronic devices, healthcare, and eCommerce sectors.
It said the ongoing economic recovery and US-China trade diversion should accelerate multinational companies’ production relocation plans and hence, drive the demand for industrial lands.
“Some developers are also focusing on reducing their completed inventories to improve sales and cashflow,” UOBKH said in a note.
Its top picks for the sector are Matrix Concepts Holdings Bhd and Sunway Bhd.
UOBKH noted that Matrix and Sunway may display the most resilient earnings growth going forward.
“In the third quarter of 2022 (3Q22), most companies within our coverage were on track to reaching their full-year sales target, at around 70%.
“Note that in 2021, all developers under our coverage surpassed their targets,” it said.
In 3Q22, the earnings of property companies under UOBKH’s coverage generally improved by 3% quarter-on-quarter and 57% y-o-y.
This was largely due to the pent-up local demand, better contribution from overseas projects, gradual easing of building material costs and higher productivity level resulting in better progress billings amid the continued economic reopening.
Developers like Sunway and UEM Sunrise Bhd reported better-than-expected earnings in 3Q22 while S P Setia Bhd’s earnings came in below expectation.
“However, sentiment dampeners such as the disappointing Budget 2023 measures, interest rate hikes and ongoing inflation may put pressure on the earnings outlook ahead,” according to UOBKH.
Commenting on new launches, UOBKH expects a significant jump in 2023.
“Launches are estimated to rise 40% to 50% y-o-y in 2023, given the lack of launches so far in 2022.
“This year, the local property sector faced challenges in securing approvals due to the delays from the Housing Ministry and local governments, which impacted planned launches.
“According to the National Property Information Centre, only 10,000 units of properties were newly launched in the first half of 2022 (down by 67% y-o-y),” the research house said.