Overweight
Sector Update
Economic recovery, rising inflationary expectation and an excess of liquidity permeating the market due to easy monetary conditions would ultimately benefit the property sector, especially the high-end property market. We see minimal impact from RPGT and recent mortgage rate hike due to:
a) property demand in Malaysia is still dominated by owner-occupier;
b) affordability remains high; and
c) attractive financial packages offered by developers. Meanwhile, more aggressive launches and land acquisitions also reflect developers’ optimism on the property market.
We see challenges from the implementation of new FRS and we expect high volatility in earnings performance due to lumpy profit recognition. As a result, our FY11-12 full year earnings forecasts could potentially drop by 24.2-83.7%. We understand that big property players (with township developments or investment properties) have lesser impact (or lower volatility) than project- or location-focused players. We are switching our valuation method from P/NTA to RNAV due to FRS convergence ahead.
As for investment property owners, we see lower occupancy and rental risks now due to the economic recovery as well as improving office market outlook.
Maintain Overweight stance on the property sector. We prefer developers over investment property owners. Our top picks are Sunrise, Glomac and IJM Land.
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