KUALA LUMPUR: Sunway is AmInvestment Research's top pick among the property companies due to its consistent sales performance despite a soft property market.

       In its research note on Thursday, it had a fair value of RM2.20 for Sunway underpinned by its attractive products in good locations and a strong brand recognition arising from highly successful landmark developments.

       “We also like its expanding healthcare business, coupled with good earnings visibility supported by substantive unbilled sales and outstanding order book,” it said.

       Overall for the property sector, it remained neutral for the second half of 2021.

       The local property sector has been languishing over the last five to six years, since hitting an upswing in mid-2013 when the House Price Index (HPI) showed double-digit growth.

       “We believe the most encouraging signs this year were: (1) developers’ 1Q2021 sales growth rate of 5% to 10% YoY via online booking platforms amid the pandemic; (2) willingness to sacrifice margin by focusing on affordable residential segments in line with market demand; and (3) landbanking activities in prime areas with good public infrastructure and connectivity to KL city centre,” it said.

       AmInvest Research was however cautious on the 2H property outlook due to the various movement and economic restrictionswhich can cause a slower-than-expected recovery in the sector.

       It said Sunway recently raised its FY21F sales target by 38% to RM2.2bil (from RM1.6bil previously)given the encouraging sales in Singapore and Sunway Belfield, KL city centre.

       “However, most of the property developers under our coverage have maintained their FY21F sales target of RM1bil to RM3.8bil so far, which is relatively flat compared to the actual FY20 sales achieved at RM900mil to RM3.8bil.

       “After successfully registering upbeat 1QCY21 sales, accounting for 32% of full-year targets on average, we think the sales momentum could slow down from mid-May with the imposition of MCO 3.0, which was subsequently followed by a lockdown in June,” it said.

       AmInvest Research said in March last year when the first MCO lasted 1.5 months (from March 18 to May 3), housing sales fell 11% QoQ in 2Q2020 and thereafter rebounded by 121% QoQ in 3Q2020.

       However, it does not expect the same pace of recovery in 2H2021 as economic activities are only allowed to resume in phase three (targeted in September) under the National Recovery Plan.

       “Hence, we do not anticipate positive earnings surprises over the next six to 12 months,” it said.

       Based on Bank Negara’s 2H2020 Financial Stability Review, the average loan-to-value (LTV) ratio of outstanding housing loans remained below 60% (vs. 59% and 57% in 2018 and 2019 respectively).

       Banks remain prudent in residential property lending to mitigate the risk of more borrowers falling into negative equity and limit the increase in loan loss provisions.

       Even though loans applied for residential properties reached an all -time historical high in April 2021, reflecting improved consumer sentiments in the sector, banks’ average approval rate slid to only 34.2% from 37.4% a year ago.

       “We believe this is likely due to house buyers’ inability to qualify for a home mortgage given high debt service ratios (DSR) for newly-approved loans at 43% while the household debt-to -GDP ratio has risen to 93.3% as at December 2020 from 82.9% at December 2019,” it said.

       The DSR is calculated by dividing applicants’ debt service obligations by their incomes to assess borrowers’ risk profile (most banks observe a cap of 43% for the low-income group, and 71% for the middle-high income borrowers).

       AmInvest Research said potential house buyers may have little room left to take on a home mortgage due to their existing debt service commitments (arising from outstanding study, car or personal loans) while their incomes have not grown sufficiently during the pandemic.

       This was exacerbated by the softer job market as reflected in the still elevated unemployment rate of 4.7% in January to May 2021 (vs. 4.1% YoY).

       It also pointed out over the past three to four years, many developers have moved from higher-end products to affordable ones.

       “We are mindful that affordable housing typically commands low margins which could be crimped further by intensifying competition as this segment gets more crowded by the day.

       “However, we think that companies under our coverage are established enough to compete with their peers given their savvy management teams and healthy balance sheet with net gearing ratios of 30%–59%, while both Mah Sing and Lagenda Properties are in net cash position.

       “Hence, they have the ability to secure strategic landbanks with a reasonable cost-to -GDV ratio of between 10% and 20%.

       “Year to date, both Mah Sing and UEM Sunrise have each acquired two landbanks in Klang Valley while Sunway secured one. Gradually, national residential overhang has tapered down by 8% YoY to 27,468 unsold units in 1Q2021, translating to RM18.5bil (vs. RM18.9bil in 1Q2020),” it said.