Highlighted Companies
Eco World Development Group Bhd ADD, TP RM0.82, RM0.575 close
We like Eco World Development given the strong sales momentum, improving balance sheet and decent dividend yields.
Sime Darby Property Berhad ADD, TP RM0.70, RM0.41 close
We like Sime Darby Property for its healthy balance sheet and steady sales momentum. We believe that its large landbank is an advantage, enabling it to address any changes in future product demand.
Developers not excited on property outlook
- Rehda’s survey shows that property developers had weaker new property sales/launches in 1H22 vs. 2H21 and are less optimistic on property outlook.
- Developers under our coverage chalked in higher 1H22 new sales vs. 2H21 following easing of lockdowns, and 2H22 new launches likely to be stronger.
Rehda’s market outlook survey outcome
? According to The Edge Market’s article dated 12 Oct 2022, Real Estate and Housing Developers’ Association (Rehda) said that: (i) Peninsular Malaysia’s property developers reported a 26% decline in unit launches and a 5% sales drop in 1H22 vs. 2H21; (ii) 48% of developers surveyed by Rehda said they did not plan any launches in 2H22, with the top reason being unfavourable market conditions; (iii) developers to launch more residential properties within the RM250,001 to RM500,000 range in 2H22; and (iv) 44% of developers are pessimistic about consumers’ purchasing power in 2H22, and 41% are pessimistic for 1H23. Rehda’s latest market outlook survey covered 150 respondents.
? Rehda’s survey also revealed that: (i) first-time homebuyers made up 42% of 1H22 property buyers, following by upgraders at 36% and the remaining by investors, (ii) 53% of 1H22 residential new launches were priced at RM250,001 to RM500,000, while most of the unsold units (29%) were priced at RM500,001 to RM600,000, and (iii) top reasons for unsold units are loan rejections, unreleased Bumiputera lots and high pricing/low demand.
Developers under our coverage could be launching more in 2H22
? For property developers under our coverage, we observe 1H22 new property sales were lower c.2% yoy mainly due to fewer new launches (-35% yoy). However, 1H22 new property sales vs. 2H21 were stronger by 10% following economic reopening and easing of lockdowns.
? We expect developers under our coverage to post aggregated FY22F new property sales that are around FY21 level of RM15.2bn, according to the FY22F new property sales target set by the players. Most of the property developers under our coverage are ramping up new launches in 2H22 vs. 1H22, riding on the reopening of borders/economy and timing of approval from authorities. Nonetheless, new launches could be delayed or cancelled depending on macro headwinds, in our view.
Reiterate sector Neutral
? We stay sector Neutral given the potential interest rate hikes (our economist is projecting another two 25bp rate hikes in CY23F), higher property overhang (+2% yoy in 1HCY22, in terms of total overhang value) and escalating construction costs arising from building material and labour shortages. These are balanced by the undemanding valuation of the KLPRP Index, at c.0.4x P/BV as of end-Sep 2022, 1 s.d. below its historical 10-year P/BV of 0.68x.
? We like Sime Darby Property and Eco World Development given their experience within the green building space and massive landbank to cater to changes in consumer preferences. Sector upside risk: stronger-than-expected new sales; downside risk is a weaker macro outlook.
