Lack of strong re-rating catalysts; maintain NEUTRAL
We maintain our Neutral stance on the sector and see several hindrances
to sales, in particular potential interest rate hikes and political
uncertainties ahead of general elections (GE15) that could adversely
affect the decision to purchase big-ticket items. Elsewhere, the latest
NAPIC statistics showed weakness, with unsold stocks having
unexpectedly jumped significantly both YoY and QoQ. We believe that
property sector recovery is not broad-based and remains fragile. Our top
pick: SDPR.
Feedbacks from our roadshow
We conducted a roadshow on the property sector in end-Mar 2022. Most
of the investors we spoke to were generally concerned on: i) developers’
profit margins post the hikes in labour/raw material costs; and ii)
potential impact on property sales in the absence of HOC and from
interest rate hikes. Investors generally agreed that the sector lacks
strong re-rating catalysts over the short term. Having said that, we
sensed stronger interest towards developers which pay a good dividend,
have healthy balance sheets and higher exposure in landed/industrial
properties.
Latest NAPIC data showed weakness
While 2021 residential property sales grew +4%/17% YoY to 198,825
units/MYR76.9b (from 191,354 units/MYR65.9b in 2020) thanks to
historically low interest rate and HOC 2021, unsold stocks have jumped
to 129,054 units, +8% QoQ, +13% YoY (3Q21: +1% QoQ, +3% YoY). This was
despite the implementation of HOC 2021 that was meant to reduce the
unsold stocks in the country. While HOC managed to lift the buying
sentiment (demand), strict control on supply (e.g. housing approvals,
plot ratio) and accurate & timely housing data are equally important in
helping solve the persistent property overhang issue in the country, in
our view.
Developers are less aggressive in 2022
Without the HOC extension and given the uncertainty arising from the
Russia-Ukraine war as well as potential interest rate hikes in 2H22,
developers are cautious and expecting flat/lower sales target (-56% to
+2.8% YoY) in 2022. We stay cautious and advocate investors to be
selective. We like SDPR for its exposure in both landed properties and
industrial parks as well as healthy balance sheet (0.31x net gearing)