KUALA LUMPUR, July 20 — AmInvestment Bank has maintained a “neutral” view on the property sector as the outlook remains challenging for the next 12 months.
In a research note today, it said, the Covid-19 breakout has caused a major upheaval in the global economy, leading most developers to continue assessing the economic situation while deliberating whether to continue or defer future launches.
“We believe consumer sentiment remains weak for the time being with spending mainly focused on necessities while big-ticket items such as property take a back seat,” said AmInvestment Bank.
It noted that developers should still remain profitable for the financial year (FY) 2020-2021 but would be cautious about their gearing ratio.
“Companies such as S P Setia, MRCB, Ecoworld, Titijaya Land and UEM Sunrise have many projects still in their early stages, hence we do not expect strong revenue recognition in the next 12 months.
“On the other hand, we remain cautious about the financial leverage of some companies as it is one of the key factors to their survivability during an economic downturn,” said the research house.
Based on its data, the net gearing of developers under its coverage was still under control, averaging at about 36 per cent while interest coverage remains strong at circa eight times.
Crest Builder has the highest net gearing at 92 per cent followed by Ecoworld’s 67 per cent and S P Setia’s 60 per cent.
Nonetheless, the bulk of Crest Builder’s borrowings was used to finance its concession business where payment receipts are guaranteed by the government. Excluding the concession borrowings, the company was in a net cash position.
Meanwhile, the affordable property segment would also remain the key focus, with an anticipation of better performance, driven by its mass market, especially demand from young professionals and families due to continued urbanisation.
This is well reflected by the move by the majority of local property developers to focus on this segment.
Besides, the reintroduction of the home ownership campaign (HOC) with stamp duty exemption to purchase residential properties priced RM300,000 — RM2.5 million and the exemption of real property gain tax (RPGT) for Malaysians on the disposal of residential properties made from June 1, 2020 to Dec 31, 2021 are positive news for developers.
These key measures are expected to improve the overall sentiment of house buyers and the residential property market in Malaysia.
The research firm’s top pick for the sector was IOI Properties Group which is banking on a strong contribution from its property development projects, particularly in China and Singapore.
It also views the long-term outlook for real estate investment trusts (REITs) to be positive given the diminishing rate of Covid-19 infections in Malaysia while several stimulus plans by the government provide greater earnings visibility.
Furthermore, Malaysian REITs’ dividend yields of more than four per cent on average for FY2020 and more than five per cent for FY2021 and beyond, offer attractive returns compared to the current low-interest-rate environment.
AmInvestment Bank said it may upgrade the property sector to “overweight” if the banks were to ease lending policies on properties or consumer sentiment improves significantly.
On the contrary, it may downgrade its neutral stance for the property sector to underweight if the banks were to tighten further their lending policies on properties or if consumer sentiment deteriorates further. — Bernama