PETALING JAYA: The property sector continues to be supported by pent-up demand, better contribution from overseas projects helped further by the easing of the labour shortage and higher billings, says UOB Kay Hian (UOBKH) Research.
The research house said the earnings of companies within its sector coverage for the second quarter of 2023 (2Q23), generally came in within expectations, improving 24.5% quarter-on-quarter and 12.9% year-on-year, while net profit in the first half of 2023 (1H23) grew by 6%.
One such instance was Mah Sing Group Bhd’s results, which were slightly above expectation on the back of higher progress billing recognition from several projects such as M Vertica and M Adora being completed.
“We expect 2H23 earnings to be stronger than 1H23, backed by developers’ strong unbilled sales and catch-up in construction work on the back of the improved labour shortage, as well as lumpy earnings from overseas projects.
“Developers with property investment (leisure and hospitality business), such as Sunway Bhd, are expected to benefit from the return of China tourists in 2H23,” UOBKH Research said in a report.
For 2023, the research house expects companies under its coverage to post an average revenue and net profit growth of 4% and 10%, respectively, with Mah Sing recording the most growth on the completion of a few projects.
For 2024, UOBKH Research projects the sector’s average revenue and net profit to grow 5% and 6%, respectively, with Eco World Development Group Bhd recording the most growth on contribution of higher-margin industrial property.
“We prefer companies with strong fundamentals and proven track records of execution. Among our coverage, we like Mah Sing, Sunway and Matrix Concepts Holdings Bhd for their healthy balance sheets (less than 0.5 times), robust sales momentum and strong unbilled sales.
“Other firms that are not in our coverage but have good track records are Eastern & Oriental Bhd (trading at a steep discount of 60%), IOI Properties Group Bhd (trading at a steep discount of 56%), Paramount Corp Bhd (trading at a steep discount of 57%), Sunsuria Bhd (trading at a steep discount of 57%) and OSK Holdings Bhd (trading at a steep discount of 56%),” UOBKH Research said in a report yesterday.
Overall, the research house said some weakness is expected in property share prices in September.
From January to August 2023, the KL Property Index outperformed the FBM KLCI with a 35% gain, compared with the FBM KLCI’s minus 3% index return in the same period.
“We expect a choppy September as the FBM KLCI’s historically stormy month of September (10-year/20-year: minus 1.7%/minus 0.8%) may spill over to the property sector, which saw an average monthly decline of 2% in the last 10 years, underperforming the broader market historically,” UOBKH Research said.
Nevertheless, the research house expects property share prices to regain their footing in October, as the country’s Budget 2024 is tentatively scheduled to be tabled on Oct 13.
In particular, UOBKH Research expects Malaysia My Second Home to undergo a more lenient and foreign-friendly policy revision.
“The requirements were significantly elevated in 2021, with the fixed deposit requirement rising from RM300,000 to RM1mil and the monthly offshore income requirement increasing from RM10,000 to RM40,000.
“Other than that, we think Budget 2024 may provide more clarity on the proposal to revive the high-speed rail project, the revival of Forest City, and the special economic zone in Johor, which in turn may spur trading interest in the sector,” the research house said.
Other upside risks to the property sector include Johor’s economic vibrancy which stems from the commencement of the rail transit system (RTS) in the fourth quarter of 2026, and the potential appointment of the Johor Sultan as the 17th Agong of the country in 2024.
The RTS project is expected to boost demand for properties in Johor due to its improved connectivity with Singapore.
“Moreover, there is a potential increase in industrial property demand from the launch of the New Industrial Master Plan 2023 and the construction sector’s expectations of the rollout of mega projects in Budget 2024, which may generate spillover interest in the property sector,” UOBKH Research said.
It maintained a “market weight” call on the property sector with Matrix, Sunway and Mah Sing as its top picks.