KUALA LUMPUR: Kenanga Investment Bank Research has maintained a neutral call on the property sector it is still plagued with affordability, policy and oversupply issues.
“We feel the sector still lacks sustainable earnings visibility and growth to justify a re-rating in valuations,” it said.
“While sales numbers reported by developers have generally been good year-to-date, we believe it would be increasingly hard to drive sales in FY22 given absence of home ownership campaign (HOC) discounts, and expected interest rate hikes on the back of a persistent oversupply issue,” Kenanga said.
The research house said year-to-date, sales by most developers under its coverage have been strong with Eco World and Sunway already surpassing its initial sales targets while Sime Darby Property and SP Setia are likely to surpass sales targets by 4QFY21.
Kenanga believes the broad rationale behind the strong sales was due to the low interest rates climate coupled with the ongoing HOC being implemented.
“Should our FY21 sales target be met by individual developers in 4QFY21 (Feb 2022 reporting), note that cumulative developers’ sales (of RM18.9bil) under our coverage would surpass pre-Covid levels mainly thanks to Eco World and Sunway’s outstanding performance,” it said.
While FY21 sales have been encouraging, Kenanga is less upbeat on FY22 sales prospects.
It said this is mainly due to the absence of HOC, expected interest rate hike as the economy recovers, property cooling measures implemented in Singapore (in Dec 2021) and growing overhangs and unsold units under construction within the residential market which would create a more competitive market.
“Therefore, we anticipate a drop in overall year-on-year sales by developers under our coverage to RM17.75bil,” Kenanga said.
Should the HOC be extended, Kenanga is mildly positive as this would provide upside towards its FY22E sales numbers.
However, Kenanag said such tax holiday assistance as just a temporary measure while the ongoing structural issue of oversupply still persists.
“Overall, the sector still remains fundamentally challenged from affordability, policy and oversupply standpoints.
“Despite the low valuations (in PBV terms), the entire sector still lacks sustainable earnings visibility and growth to justify a re-rating.
“That said, we feel that certain developers’ share price has undershot fair valuations and now provides an appealing risk-to-reward profile for bottom-fishing trading opportunities. Such names includes UEM Sunrise, Sunway and Sime Darby Property,” it said.