Property
Property - Stable demand ensures recovery prospects
Mon, 09-Oct-2023 10:59 am
by Kenneth Leong • Apex Research

• Review. The property sector raked in a strong quarter in 1H23 with 11,273 (+120% YoY) residential properties transacted, according to Real Estate and Housing Developers’ Association (REHDA) Malaysia. Meanwhile, residential property launches also jumped 95.8% YoY to 14,392 units during the period (of which 3,945 units representing 27.4% of new launches were sold), which highlights the optimism of recovery in demand. In 1H23, total property transaction value rose 1.1% YoY to RM85.37bn with more than 184,000 transactions recorded. At the same time, the stability in loan approval rate at 44.1% in 7M23 ensures sustainability

• While 1Q23 unsold properties continues to deliver gradual improvement at 142,000 units (from the high of 174,000 units in 2021), the aforementioned figure is still on an elevated level against historical average. Elsewhere, the 3Q23 property index emerged as the biggest winner (+26.9% QoQ) to close at 875.30 pts. The said improvement was spurred by the prospects of turnaround in Johor property scene amid the on-going Johor-Singapore RTS project, coupled with the prospects of High-Speed Rail (HSR) link resumption

• Outlook. We expect challenges to persists in bid to reduce the overhang units due to the mis-match of income andproperty prices, given that bulk of the overhang high-rise units are priced above RM500,000. Majority of the propertyplayers are also now proceeding with their launches on a more prudent, gradual and progressive manner (newresidential property launches fell 50.2% YoY to slightly over 16,000 units in 1H23). As at end-2022, we gather thatMalaysia household debt-to-GDP ratio moderated to 81.2% – the lowest since 2011. Although the aforementioned ratiobodes well, majority of Malaysians are coping with the rising cost of living due to the low wages and multiple specialwithdrawals from their retirement funds. Hence, the ability to gear up for big ticket items remains challenging. With Bank Negara taking a pause in OPR hike, we expect loan applications to tick higher in subsequent months as the move could provide some relieve for prospective homebuyers and allowed planned purchases to proceed accordingly.

• Valuation & Recommendation. We favour property players that sits on strong balance sheet that is expected to be able to weather the interest rate upcycle environment (holding cost of land banks), coupled with good traction of township developments such as S P Setia Bhd (NR), Matrix Concepts Holdings Bhd (NR) and OSK Holdings Bhd (NR). Meanwhile, our top picks are Lagenda Properties Bhd (BUY; FV: RM1.63) for its strong exposure in the affordable housing segment which is strongly aligned with the mass market demand and Skyworld International Bhd (BUY; FV: RM0.94) for its strong historical take-up rates backed by competitive property pricing and strategic locations. Following the appreciation of share prices in majority of the property players, we gather that current PB for
the property sector at 0.5x and is now fair against the historical average of 0.4-0.6x.

• Key Risk. Difficulty to pass on higher building material cost to prospective purchasers, higher compliance cost and rising utilities cost.

• Summary. We expect the property sector to operate in a challenging landscape in bid to balance between the rising material and operational costs and delivery of sales. We are Neutral on the property sector on the back of the (i) stability in demand for residential properties, (ii) slower rollout in commercial properties to ensure no. of overhang units kept in check and (iii) pent-up demand for industrial properties as a proxy to rising foreign direct investment (FDI) following the US-China trade diversion.

Recommendation: Neutral
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