Thai property sector on uneven ground

THE Thai property sector isn’t quite a write-off despite much turbulence of late.

The market may be struggling under the weight of economic and natural shocks, but some names still show resilience – and that’s keeping hopes alive for a better second half.

Maybank Investment Bank Research (Maybank IB Research), in its latest note, maintains a “neutral” stance on the sector, flagging a series of near- and medium-term challenges that are likely to cap any major upside for now.

“We believe the property sector is currently facing multiple challenges,” the research house says, noting the sector is expected to be directly impacted by the recent earthquake in neighbouring Myanmar.

In the short term, the disaster has cast a shadow on the outlook, it notes, adding that the demand for condominiums – already soft – is expected to be further impacted.

The macro picture doesn’t offer much comfort either.

Slowing economic activity at home, coupled with global uncertainty and policy noise from the United States, is dampening investor sentiment.

“Over the medium term, a slowing domestic economy – partly influenced by international tax policies from the United States – is likely to weigh further on market sentiment,” Maybank IB Research explains.

Even so, the sector isn’t without its support.

“We see valuation support, as the sector continues to trade at undemanding price-earnings multiples,” Maybank IB Research says, adding there’s room for selective optimism.

Its top pick is Sansiri PCL, based on expectation of standout net pre-sales growth of 10% year-on-year (y-o-y) this year and a dividend yield of 12%. That said, the near-term earnings picture paints a fairly downbeat story.

Silver lining

The research house forecasts a significant drop in profits across the board for the first quarter (1Q) of this year.

The main culprit? Sluggish demand and the absence of fee cuts for property transfers and mortgage registrations.

“The y-o-y and quarter-on-quarter (q-o-q) declines are expected to be attributed to weaker residential demand, and no fee reductions for property transfers and mortgage registrations, leading us to forecast a decrease in core profit for almost all property stocks both y-o-y and q-o-q.”

On the top line, the aggregate housing revenue of stocks under coverage for 1Q25 is estimated at 23 billion baht – down 21% y-o-y and 36% q-o-q. However, there’s a silver lining in margins.

“We anticipate average housing gross profit margin (GPM) of 30.9% for 1Q25, an increase of 2.1 percentage points q-o-q. This will end the quarterly housing GPM downtrend for last year,” Maybank IB Research says.

Sales figures tell a similar story of uneven performance.

Total net pre-sales for 1Q25 came in at 38.7 billion baht or about US$1.2bil, broadly unchanged from the previous quarter and the same period last year. But while the overall number seems steady, the underlying performances vary drastically.

“Some developers significantly under-performed in terms of 1Q25 net pre-sales. Land and Houses PCL and SC Asset Corp PCL were the worst performers, with y-o-y declines of 53% and 35%, respectively. On the other hand, AP Thailand PCL and Sansiri were the top performers, with y-o-y increases of 25% and 40%, respectively,” Maybank IB Research highlights.

Cumulatively, this equates to just 21% of the full-year sales target – not exactly confidence-inspiring.

Holding pattern

Looking ahead to the second quarter, Maybank IB Research expects a flat performance sequentially.

While the recent earthquake might continue to suppress demand in the short run, certain policy moves could cushion the blow.

“Although the recent earthquake is likely to negatively impact condominium demand and transfers in the short term, the downside may be partially offset by several supportive government policies, including reductions in property transfer and mortgage registration fees, a relaxation of loan-to-value measures, and a domestic policy rate cut,” Maybank IB Research states.

On the earnings front, one notable outlier stands out – LH – thanks to a large gain from an asset divestment. When extraordinary items are stripped out, however, the broader sector remains under pressure.

“We estimate the aggregate net profit of property stocks within our coverage universe for 1Q25 at 3.2 billion baht, representing a 26% y-o-y and 57% q-o-q decrease. There is a huge extra item from a gain from LH’s asset divestment.

“Excluding extraordinary items, we expect aggregate core profit for 1Q25 to be three billion baht,” Maybank IB Research states.

All in, the research house’s latest analysis captures a sector that’s in a holding pattern. Developers face real headwinds in the form of macro weakness and shifting policy winds, yet low valuations and selected performers provide a buffer against a full-blown downturn.