CGS-CIMB Research said there is strong revenue and earnings visibility for the sector.
PETALING JAYA: CGS-CIMB Research is generally bullish on the property industry, underpinned by strong revenue and earnings visibility, as well as an improving mortgage loan approval-to-application ratio and better labour supply outlook.
The research house, in a note released yesterday, said there is strong revenue and earnings visibility for the sector as developers have set high sales targets for 2023, with strong unbilled sales of up to two years.
The total property sales in 2022 had jumped 29% year-on-year (y-o-y) to 389,000 units, mainly attributed to a 22% growth in the residential segment and a 46% growth in commercial properties, according to the research house.
“We expect further sales growth in 2023, as the large developers under our coverage continue to set high sales targets, underpinned by a relatively strong domestic economy,” it said.
It noted that Mah Sing Group Bhd
is expecting sales figures to hit RM2.2bil for its financial year ending Dec 31 2023, after having achieved RM2.12bil last year while S P Setia Bhd, having seen sales reach RM4.11bil in 2022, has also set an improved RM4.2bil target for 2023.
Of interest is Sime Darby Property Bhd, which has set a lower sales goal of RM2.3bil for 2023, despite having exceeded that figure by a considerable margin in 2022 when its sales reached RM3.7bil.
According to the research house, Sime Darby Property has consistently surpassed its own targets over the past five financial years.
“Developers under our coverage have high unbilled sales of RM20bil in the first quarter of 2023 (1Q23), which translates into an estimated cover ratio of up to two times.”
The optimism is also supported by an average mortgage loan approval-to-application ratio that has improved to 0.41 times between April 2022 and March 2023, compared with 0.37 times for the preceding corresponding period.
The analyst pointed out that the improved ratio was closer to the pre-lockdown level of 0.43 times.
“Similarly, at 3%, the overnight policy rate has reverted to pre-lockdown levels, suggesting a resilient domestic economy premised on domestic consumption and low unemployment,” he said.
Moreover, CGS-CIMB Research said between January and March this year, the government had implemented the foreign workers employment relaxation plan aimed at expediting the application and approval process for foreign workers.
As of March, it was reported that the Human Resources Ministry had approved a quota of 995,000 total foreign worker employment permits, 342,000 of which were for the construction sector and as such, challenges due to the shortage of labour would gradually ease.
Despite the helpful elements surrounding the property and construction sector, the research house has upgraded the sector to “overweight as companies under its coverage are still undervalued and there is an upside potential.
The top picks of the research house are Sime Darby Property and Mah Sing Group, with a target price of 73 sen and 79 sen respectively.
