Better earnings seen for developers in final quarter
Brokerage says confidence slowly returning to the market
PETALING JAYA: Local property developers are likely to chart better earnings performances towards the final quarter of this year, as confidence slowly returns to the market.
TA Securities said the brighter outlook is premised on factors such as an expected economic recovery, reintroduction of the home ownership campaign (HOC), sector-benefiting policies and an accommodative interest-rate environment.
“While our economist believes Bank Negara will stay pat on the 2% overnight policy rate for the rest of 2020, she does not rule out another reduction in interest rate should the economic situation worsens, like another wave of infections leading to another movement control order (MCO) phase.
“Historical-low US fed fund rate, as well as muted inflation, would be supportive of another rate cut, if any,” said the research house in a report.
TA Securities said its recent engagement with developers suggested that all of them have put in place integrated digitalised sales processes.
These include the launching of virtual show units on their official website, boosting of more digital campaigns, conducting online bookings and payments as well as adding incentives for online sales conversion.
“To our surprise, we see positive market acceptance towards buying property online as several developers reportedly garnered encouraging bookings during the MCO period.
“We expect this online sales trend to continue even after the MCO and expect developers who are able to reach out to their buyers more innovatively to stand out among the peers.”
To tackle the rise in Covid-19 infections in the country, the government implemented the MCO on March 18. On May 4, a conditional MCO (CMCO) was enforced to allow businesses to re-open to recover the economy. The CMCO has been extended to June 9.
Commenting on the first-quarter earnings season, TA Securities said the financial results of nearly all of the developers under its coverage came in below expectations.
“Six out of eight developers under our coverage (including Glomac’s quarterly result ended January) have reported their quarterly results for the first quarter period. Excluding Glomac, all five developers’ results came in below expectations. This was the biggest disappointment since 2010.
“Generally, the weaker-than-expected results were largely due to more-severe-than-expected impact from the twoweek MCO in March, resulting in lower progress of works and margin (for all developers) and weaker contribution from hospitality and leisure business, which were not allowed to operate during the MCO.”
The research house said the scale of damage from the MCO to developers’ earnings was greater-than-expected.
“The sector’s pre-tax profit plunged 43% year-on-year and 58% quarter-on-quarter in the first quarter of 2020. The earnings decline was widespread across all developers.
“In terms of property sales performance, the sector’s first-quarter aggregate property sales decreased by 6% year-on-year and 49% quarter-on-quarter. Excluding overseas sales, the sector’s aggregate property sales sank further by 29% year-on-year and 64% quarter-on-quarter in the first quarter of 2020.”
Notwithstanding the MCO impact, TA Securities said a spike in property sales in the fourth quarter of 2019, due to eleventh-hour purchases by home buyers taking opportunity of the incentives offered under the HOC, also caused the steep sequential slowdown in domestic sales.