Property sector deemed winner during Budget 2019

PETALING JAYA: The various property-related measures announced during Budget 2019 will help to drive property sales and lower the number of unsold units for developers.

Maybank Investment Bank Research (Maybank IB) said in a report that the property sector was a “clear winner” last week.

“While we are waiting for more details on the ‘property crowdfunding’ platform, we view these creative alternative financing platform as a re-rating catalyst for the sector over the short term and it should help to boost property sales and lower the number of unsold properties.

“This is further supported by the joint effort between the government and private developers via the home ownership campaign which will be launched in January 2019.”

The research house said it is maintaining its earnings forecasts and revised net asset value (RNAV)based target prices.

“We are now tactically positive on the property sector (previously neutral) for its crisis-liked type of valuations (which is) a 58% discount to our RNAV estimates. Consequently, we believe the concerns on record-high unsold stocks in the country and a slowing gross domestic product have been largely priced in.

“We anticipate better sales in the second half of 2018 (post-elections and zero goods and services tax in June to August 2018, as well as aggressive marketing packages by the developers) and the first half of 2019. We upgrade the property sector to positive.”

Risks to its calls include failures or delays in executing and implementing the property crowdfunding platforms, said Maybank IB, in view of the heavy 20% downpayment upfront cost.

The worsening housing glut and rising competition from government-private partnership housing projects also pose potential risks, the research house said.

“Our top picks are SP Setia and UEM Sunrise. SP Setia is looking to seal its Battersea Power Station phase 2 commercial space sale in November or December 2018, while UEM Sunrise will start reaping the fruits from its Australian projects.

“Earnings from both the sold Aurora and Conservatory projects in Melbourne will be recognised between the third quarter of 2018 and first half of 2019. Both SP Setia and UEM Sunrise are on track to meet their sales targets of RM5bil and RM1.2bil for 2018, respectively.”

Meanwhile, Kenanga Research pointed out that property stocks have been bashed down to new lows.

“The KL Property Index recently hit a five-year price-low with its year-to-date change at minus 26%, which is far more severe than the FBM KLCI’s performance of minus 3.9% year-to-date.”

Given clarity from Budget-2019, the research house thinks that some rebounds for the big boys are warranted, given the relatively better earnings sustainability and less margin risks due to overseas drivers or land sales.

“We reiterate neutral on developers as it will take a while for valuations to properly recover to historical mean levels even though they are at very low levels now which may be capped by the risk of margin compressions. Real re-ratings will only come if we see margin recoveries and outperformance in sales targets.”