Sector Update 19 October 2016 PP7004/02/2013(031762) Page 1 of 17 Property Developers NEUTRAL Budget 2017 Preview ↔ By Sarah Lim l [email protected]Expectations have raced ahead of Budget 2017 (21-Oct) and potential OPR cuts with developers’ share prices performing better than the broad market, indicating that the positives have been priced-in. First-time home buyers will remain a theme for Budget 2017 and we believe the likeliest measure is higher EPF Account 2 allocation and withdrawal limit for first-time home buyers; but this will at best boost sentiment and help developers sustain current sales level instead of driving strong sales growth. The market also expects easing banking policies for the sector that we think is unlikely for Budget 2017 (unless it is for units below RM300k/unit, which has no significant impact on our universe of developers). Money lending guideline for developers are still at a consultative stage and will take time to formalize; nonetheless, our checks indicate that developers are likely to limit such usage for ‘bridging’ entry level gaps in the event of low margin of finance from banks. Aug 2016 Property Loans data has shown improvement following Jul 2016 OPR cut, but sustainability of the momentum requires another 2-3 consecutive months of such improvement. In terms of another potential OPR cut (25bps), it will at best help developers to achieve current sales targets and maintain market share. It may also warrant better consumer sentiment that may buoy share prices temporarily. FD RNAV discount levels are already at mean levels and for the sector to trade above mean levels convincingly, prospects of strong YoY growth in CY17 sales is a must, which requires positive banking related measures. We are also concerned with further earnings risks as seen with SUNWAY’s recent trimming of its sales target. If our expectations materialize, either one of these may happen; (i) investors may TOP SLICE slightly as the market has bought ahead on positive news flow, (ii) investors may continue their trading stance until the next MPC meeting (potential OPR cut). If there are no major positives for Budget 2017, there could be heavy profit-taking amongst developers, particularly big-caps players, which have rallied recently. Maintain NEUTRAL on Developers and we are likely to maintain status quo unless significant easing banking policies are introduced. Expectations race ahead of Budget 2017 and potential OPR cuts. Since our last sector report (“When Sentiment Supersedes Fundamentals”, 2 nd Sep 2016) where we highlighted potential Budget 2017 expectations (DIBS for first home owners, changes in loan assessment method for first-time home buyers, increase EPF Account 2 from 30% to 40% for first-time home buyers), the KLPRP rose higher at +3.4% YTD vs. the FBMKLCI (+0.7%). However, based on our universe, we note that current Quarter-To-Date (1- Oct to 13-Oct) share price performance has seen an overall average decline of 0.1% vs. 3Q16’s QTD of +9.5%; big caps showed QTD increase of 1.1% (vs. 3Q16 +10.7%) while small-mid caps saw -1.7% QTD (vs. 3Q16 +7.7%). This could indicate that most positives have been priced-in running up to Budget 2017 which will be tabled on 21-Oct. The question is, will investors take profit upon the good news as the physical property market remains challenging? Is the good news enough to push developers to show strong YoY growth in sales again?
Transcript
Sector Update
19 October 2016
PP7004/02/2013(031762) Page 1 of 17
Property Developers NEUTRAL Budget 2017 Preview ↔ By Sarah Lim l [email protected]
Expectations have raced ahead of Budget 2017 (21-Oct) and potential OPR cuts with developers’ share prices performing better than the broad market, indicating that the positives have been priced-in. First-time home buyers will remain a theme for Budget 2017 and we believe the likeliest measure is higher EPF Account 2 allocation and withdrawal limit for first-time home buyers; but this will at best boost sentiment and help developers sustain current sales level instead of driving strong sales growth. The market also expects easing banking policies for the sector that we think is unlikely for Budget 2017 (unless it is for units below RM300k/unit, which has no significant impact on our universe of developers). Money lending guideline for developers are still at a consultative stage and will take time to formalize; nonetheless, our checks indicate that developers are likely to limit such usage for ‘bridging’ entry level gaps in the event of low margin of finance from banks. Aug 2016 Property Loans data has shown improvement following Jul 2016 OPR cut, but sustainability of the momentum requires another 2-3 consecutive months of such improvement. In terms of another potential OPR cut (25bps), it will at best help developers to achieve current sales targets and maintain market share. It may also warrant better consumer sentiment that may buoy share prices temporarily. FD RNAV discount levels are already at mean levels and for the sector to trade above mean levels convincingly, prospects of strong YoY growth in CY17 sales is a must, which requires positive banking related measures. We are also concerned with further earnings risks as seen with SUNWAY’s recent trimming of its sales target. If our expectations materialize, either one of these may happen; (i) investors may TOP SLICE slightly as the market has bought ahead on positive news flow, (ii) investors may continue their trading stance until the next MPC meeting (potential OPR cut). If there are no major positives for Budget 2017, there could be heavy profit-taking amongst developers, particularly big-caps players, which have rallied recently. Maintain NEUTRAL on Developers and we are likely to maintain status quo unless significant easing banking policies are introduced.
Expectations race ahead of Budget 2017 and potential OPR cuts . Since our last sector report (“When Sentiment Supersedes Fundamentals”, 2nd Sep 2016) where we highlighted potential Budget 2017 expectations (DIBS for first home owners, changes in loan assessment method for first-time home buyers, increase EPF Account 2 from 30% to 40% for first-time home buyers), the KLPRP rose higher at +3.4% YTD vs. the FBMKLCI (+0.7%).
However, based on our universe, we note that current Quarter-To-Date (1-Oct to 13-Oct) share price performance has seen an overall average decline of 0.1% vs. 3Q16’s QTD of +9.5%; big caps showed QTD increase of 1.1% (vs. 3Q16 +10.7%) while small-mid caps saw -1.7% QTD (vs. 3Q16 +7.7%). This could indicate that most positives have been priced-in running up to Budget 2017 which will be tabled on 21-Oct.
The question is, will investors take profit upon the good news as the physical property market remains challenging? Is the good news enough to push developers to show strong YoY growth in sales again?
First-time home buyers will remain a theme for Budget-2017. The market has clearly positioned property stocks ahead of Budget 2017 on the following expectations; (i) easing of banking policies for the sector, (ii) higher EPF Account 2 allocation for first-time home buyers, and (iii) potential OPR cut post Budget 2017. (Refer to Table below for list of potential measures).
However, reading between the lines of Bank Negara Malaysia (BNM) statements recently, it appears that positive banking-related measures which are meaningful to developers (i.e. DIBS for first home owners, longer loan tenures, higher margin of financing) are unlikely to materialize in the upcoming budget announcement . During BNM’s recent workshop, it was reported that “…While households require access to credit to own a home, it is not in their own interest to incur an unsustainable level of debt to do so. Policy measures to ensure access to credit must therefore be pursued with concern for the protection of homebuyers from financial hardship leading to foreclosure and poorer welfare” (The StarBiz, 11/10/16); the article continues with “There were also suggestions that developing broader alternatives to home ownership, including a well-functioning rental market, should be pursued as a policy priority... It also provides a viable route to help low income and early career individuals onto a path towards eventual home ownership. Better enforcement is also critical to prevent the abuse of schemes intended to assist specific household segments to own or rent homes”. BNM remains concerned about high household debt while the banking sector’s Loan-Deposit-Ratio (LDR) remains at a historical high of 89% (Aug-16).
It was also reported that Budget 2017 may see new schemes to bridge the gap between first-time home buyers and financial institutions for houses valued at RM300k and below (NST, 1-Sep-16). If so, this will not be of much help to the listed developers under our coverage as most are pricing residential units at RM400-700k/unit with a very small proportion at >RM300k/unit. In key urban areas (Klang Valley and Greater Klang Valley, Johor, and Penang) where affordable housing is in greatest demand, the issue is that current replacement cost does not allow for a lot of supply of ‘liveable’ homes priced below RM300k/unit. We believe that such measures may result in a lot more supply of very small units (400-600 sf) which are not sustainable in the longer run. Additionally, many developers may not find it viable to chase that segment if development margins are not compelling enough to take on risk of development.
Regarding the potential measure of higher EPF Account 2 allocation from 30% to 40% for first-time home buyers housing withdrawals, there is debate on whether it will hurt the future pension amounts of these buyers and if the amount in first-time home buyers EPF Account 2 is meaningful enough given that they may have just started work. Nonetheless, we think it would be helpful to improve eventual home ownership of first-time home buyers. The Second Finance Minister Datuk Johari Abdul Ghani recently mentioned to ensure that to ensure these funds are utilized for such reasons only, that proceeds from any subsequent sale of the property must go back into EPF (NST,4-Oct-2016). Out of all the possible measures mentioned, we reckon the higher EPF Account 2 allocation for first-time home buyers is the likeliest measure to be announced . If announced, the measure will boost sentiment and help developers sustain current sales level instead of driving strong sales growth.
We also expect extension of the 50% stamp duty exemption on instruments of transfer and loan agreements for houses of up to RM500k/unit for first-time home buyers; but impact to the market will be muted as it has been in existence for quite a while.
Social housing initiatives by the government (PR1MA, SPNB, PPA1M and PPR) will also continue. We also gather that recently, MyDeposit first house initiative (lower of 10% incentive on sale price or maximum of RM30k subsidy) and My First Home Scheme (SRP) (100% financing for first homes for those with combined household (single) income of not more than RM10k/mth (RM5k/mth)) or below have been implemented. But industry players noted that more awareness and process integration is required for social housing initiatives, while the issue of poor credit ratings amongst first-time home buyers continues to be the main obstacle; most first-time home buyers tend to have personal/PTPTN loans, credit cards and/or hire purchase which may worsen their credit standing. It was reported by PropertyGuru.com.my (Jul 2016) that the response to the governments Youth Housing Scheme1 was lukewarm at 2,500 of the 20k application quota (2-year period) with RM300m worth of loans approved by May 2016; Bank Simpanan Nasional (BSN), who has been appointed to carry out the scheme, mentioned that the weak responses was due to the mismatch between the type of homes needed by these buyers and the price range
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under the scheme. Additionally, we note that much of the social housing initiatives supply is insufficient in key urban areas like Klang Valley where the need for affordable housing is greater given higher living expenses and property prices. There is also an increasing number of Federal and State social housing initiatives and there is a need for a more seamless policy for higher effectiveness. Having said that, most of these social housing policies do not impact the listed developers under our coverage. 1(100% home financing of between RM100k-RM500k with RM200/mth financial assistance for the first two years for household income of no more than RM10k/mth for first home buyers)
Potential Measures That Are Impactful To Developers Potential Measures Market
Expectations Likelihood Our View
1 Increase EPF Account 2 allocation from 30% to 40% for first home buyers
Yes Likely We think this measure could be more meaningful compared to bringing back DIBS for first-time home owners as it raises the amount in EPF Account 2 by 33%. This will be quite helpful in servicing part or the full 10% deposit or if one was unable to secure the full 90% margin financing. However, while helpful to the ‘rakyat’, the measure could take the form of alleviating current housing burdens unless the government limits it to first-time home buyers who have yet to make a purchase. Again only selective developers will benefit i.e. those doing affordable housing. If the measure is introduced and is not limited to first-time home buyers, our earlier studies (2/9/16 report) indicate that there is no concrete relationship between higher EPF Account 2 housing withdrawals and housing demand as most use it to pare down existing housing related debt rather than use to it buy a new house.
2 Government allows for 50% stamp duty exemption on instruments of transfer and loan agreements for homes up to RM500,000 for first homes.
n.a. Likely The exemption is until Dec 2016. We are likely to see an extension of this measure. Impact will not be overly significant as it has been around for a while.
6 Scheme to bridge gap between first home buyers and financial institutions for houses valued at RM300k and below.
Yes Likely Most of the pipeline launches of listed developers under our coverage residential units at mostly RM400-700k/unit with a very small proportion at >RM300k/unit. Thus, if announced it will not have a significant impact on developers. It may result in a loss of market share for developers under our coverage if demand switches to that segment.
3 Bring back DIBS for first home buyers
Yes Unlikely While it does help ‘buy time’ before servicing the mortgage during the construction period, it does not solve the issue of low margin of financing obstacles faced by many first-time home buyers. Additionally, many developers are offering rebates, financing schemes and other goodies to help these buyers make a purchase. The issue under DIBS is that many developers tend to price-in the DIBS cost into the property price resulting in higher property prices. Nonetheless, if it is brought back it would be a big sentiment booster but may not be as effective as it did earlier due to the earlier mentioned reasons.
4 Allow for financing flexibility of 95% for first time home buyer, 90% of second homes, 70% for third homes.
Yes Unlikely
If either of these measures is introduced, would be a big booster to the sector as the main obstacle for a first home buyer is getting their ideal margin of finance which could be aided by these measures. Most first-time home buyers tend to have poor credit ratings due to outstanding hire purchase, credit card and personal loans.
5 Higher debt-service ratio from 70% to 80% and loan tenure to be extended from 35 to 40 years for first home buyers
Yes Unlikely
7 Lower or remove RPGT
No Unlikely If introduced, we reckon this could be detrimental to the sector, especially the primary market. With expectations of a lot of property deliveries next year, this could cause panic sell-downs of properties in the market and create an overhang of unwanted properties. This will eat away at primary market share which would be detrimental to developers as well.
Source: Various, Kenanga Research
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Spotlight on Malaysian Vision Valley (MVV) during Budget -2017. The major beneficiary of MVV is SIME (MP; TP: RM7.90) as out of the 59,893ha that can be developed in MVV, some 28k ha belongs to SIME. MVV is a public-private partnership project which spans over 152.6k ha of land from Nilai to Port Dickson, Negeri Sembilan and is set to be developed over a 30-year period with expected investment generation of more than RM400b by 2045; the government is expected to spend RM6b on initial infrastructure. We gather there could be more news flow in this front in terms of infrastructure developments in the upcoming Budget announcement. Besides SIME, another beneficiary would be MATRIX which land bank is primarily in Seremban, Negeri Sembilan, which has been our Preferred Pick since our last sector update (2-Sep-16).
Money lending guidelines for developers will take some time . We gather the guidelines are still at a consultative stage and will take time to formalize. Glaringly, money lending rates are higher than bank lending rates and thus, it would result in lower affordability for buyers and higher net gearing for developers as they can no longer bank on cash from progress billings to fund a large part of their construction. Traditionally, developers finance a large chunk of its project working capital from progress billings assuming a decent take-up rate; at the property handover stage, the developer would have already fully drawn down the buyers’ loan from the bank implying that post project completion, the risks is between the bank and the buyer.
However, our ground checks indicate that the idea was meant to be a bridge between the differential that the amount the banks are willing to finance and the house value , rather than assuming the role of the bank itself or full financing. Currently, many first-time home buyers are facing lower than 90% margin of financing facilities due to weaker credit rating (usually due to personal/PTPTN loans, credit cards and hire purchase) and this barrier to entry has been a major obstacle for first-time home buyers. If the intention is to finance the differential gap of financing and home value, developers will need to look into how to secure these bridging-loans in the event of a bank loan default, which traditionally, the developer will not be able to recoup. Based on this intention, we think the impact on the market may not be overly significant because developers are already resolving this via discounts and rebates; nonetheless, this scheme provides developers more options of bridging the entry level gap faced by many home buyers.
Checks with industry players indicate reluctance to offer full financing like a bank due to the longer-term liabilities and risk assumed; developers are not in the practice of assessing buyers credit risks unlike banks. If these buyers are already facing difficulties getting bank financing for housing, it would mean that developers are taking on relatively higher set of risk compared to banks especially when they are not in the practice of credit risk assessment for consumers. It would also mean developers will be stuck with the buyers risks throughout the entire loan period; one would need a big and very light balance sheet especially when the cycle take a turn for the worse. Our checks reveal that even those with strong balance sheets are reluctant to do so as it shifts cash-flow risks significantly to developers. At least in the case of Build-Then-Sell, the developer can charge a premium for a completed project which would help compensate for assuming higher cash-flow risks.
We also believe the measure is handy for developers to sell completed inventory; in the case on SUNWAY, who already has a leasing arm, and only allow such financing on completed properties, which makes sense as they get to realize the value of inventory without major cash-flow impact; even so, they are limiting this to 10%-15% of their FY16E sales target. We prefer if developers avoid taking longer-term liabilities on pre-completed projects even if it translates to higher sales given the higher risk.
YoY Changes in Annual Cumm. Loans Applied & Approved (Residential & Non Residential)
Source: BNM, CEIC, Kenanga Research
Improvement observed in Property Loans data, following the Jul 2016 OPR cut… 8M16 Residential Loans Applied was flat (0% YoY) which is an improvement after its 31 months of consecutive decline (YoY-Ytd basis) while corresponding Loans Approved continues its downtrend at -19% YoY marking 19 months of consecutive decline (YoY-Ytd basis). 8M16 Non Residential Loans Applied and Approved continues to deteriorate at -26% and -31% YoY, respectively. The banking system’s ratio of Property Loans Approved to Applied stood at 40% for 8M16 vs. the 5-yr average of 50%. However, taking a closer look at Aug 2016 data itself, we note that Residential Loans Applied was up by 25% MoM while corresponding Loans Approved was up by 23% MoM , which could be a function of developers releasing more new launches since mid-2016 and lower lending rates (stemming from the Jul 2016 OPR cut by 25bps). Notably, a similar spike was seen in Mar 2016 where Residential Loans Applied and Approved was up by 59% and 50% MoM, respectively, while the subsequent four months showed declining trends.
ANNUAL CUMM: Loans Applied: BS: PP: Purchase of Non Residential Property - YoY Change
ANNUAL CUMM: Loans Approved: BS: PP: Purchase of Non Residential Property - YoY Chg
KLPRP Index
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…but is it sustainable? We need at least 2-3 months of consecutive MoM improvement to determine if the banking sector is truly turning favourable on the property sector. If the banking sector can repeat Aug 2016 numbers for the remaining part of 2016, we estimate that CY16E Residential Loans Approved and Applied could register +7% and -11% YoY-Ytd, which still indicates weaknesses in the sector or an implied Residential Loans Approved-to-Applied ratio of 41% (vs. 5-yr average: 51%) i.e. not in full swing mode yet. The ratio of Property Loans Approved to Total Banking System Loans Approved stood at 35% for 8M16 (36% for Aug-16) vs. the 5-year average of 39% which indicate some adverseness to property loans still i.e. improvement may be due to overall improved systems loans growth while our Banking Analyst maintains systems loans growth at 5-6% for CY16.
Average Lending Rates
Source: BNM, CEIC, Kenanga Research
Potential OPR cut by 25bps provides a breather, at best. Average Lending Rates (AVL) has been trending down since Aug 2006 while AVL has remained well below 5.00% since Oct 2010. Even so, since 2015, property transactions have weakened due to softer lending momentum given the multi-year high LDRs and household debts. Aug 2016 saw AVL of 4.46% which is at a 30-month low. Besides anticipating goodies from Budget 2017, investors are also looking forward to another OPR cut of 25bps by year-end. Our house view on potential OPR cut by 25bps is that there is room but there is no urgency to do so. Ironically, further OPR cuts may result in worsening LDR as depositors shy away from low rates, which does not help lending liquidity. Banks also struggle to lower lending rates given the on-going NIM compression issues.
Our scenario analysis indicates (refer below) that an additional OPR cut of 25bps (50bps for CY16) will only reduce monthly mortgages by 3.3% or RM70/mth (6.4% or RM138/mth). For the same affordability ratio and assuming 50bps rate cut for CY16, a first-time home buyer who was previously targeting a RM500k home can now afford to buy a home for RM534k, which is not a significant impact on his/her affordability. While helpful, it is not enough to push the physical residential market into a bull-mode. It is noteworthy that there are countries with even lower interest rates, which are still facing weak property market. If another 25bps OPR cut happens, it will at best help developers to achieve current sales targets and maintain market share. For share prices, an OPR cut may warrant better consumer sentiment, which may buoy prices temporarily.
Scenario Analysis on Rate Cuts A Variance
B vs. A B Variance
C vs. B C Variance
C vs. A Before Jul -16 Jul -16 OPR -25bps In Event of Another
Sector FD RNAV discount is already at mean levels. The average FD RNAV/SOP discount for our universe has been stable at 49.6% QTD (3Q16: 49.5%) and is at its historical mean levels. However, the big boys (>RM3b market cap) are trading at slightly above mean levels at 47.6% discount (mean: 49.7%) while small-mid cap plays (<RM3b market cap) are just slightly below mean levels at 52.4% (mean: 49.7%). Fwd. PERs are mostly trading at mean to above mean levels while Fwd. PBVs are mostly approaching mean levels. For the sector to trade above mean levels convincingly, we need to see strong YoY growth in sales for CY17 which entail strong banking sector related measures or a sharp improvement in GDP growth. Until then, we believe upsides will be limited and there could be further downward pressure if there are further earnings risks.
AVERAGE 12.0 30.2 16.7 7.6 AVERAGE 0.94 2.34 1.26 0.69
* Stocks excluded from the average computation are MRCB due to its corporate restructuring activities and previous loss making years. Source: Kenanga Research
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Will there be further earnings risks? Recently, SUNWAY revised down its FY16E sales target by 21% to RM1.1b due to rescheduling of launches to next year given a challenging market landscape. We were taken by surprise as this is after its 1H16 sales was on track to meeting SUNWAY’s initial target of RM1.4b at 44%. We reckon that most developers are waiting for Budget 2017 to decide if current sales targets are achievable. If Budget 2017 sees no major positive measures, there is higher possibility of developers reducing sales targets , which means there could be earnings risks; we will address this post Budget-2017 announcement. At this juncture, most developers are unable to guide their next year’s sales target.
For our universe, we estimate FY16/17E and FY17/18E sales growth of 9%/7% while corresponding earnings is at 14%/8%; for earnings, ECOWLD’s low base effect has skewed the results and thus, excluding ECOWLD, FY16/17E and FY17/18E earnings growth would be at -4%/-1%.
Kenanga Sales & Earnings Estimates Company Historical Sales
* Core Earnings ** We excluded ECOWLD earnings growth from average calculations as their property earnings are at maiden stages and will only normalize in FY17.
Source: CEIC, Bloomberg, JPPH, Kenanga Research
What if Budget 2017 sees the anticipated measures like the higher allocation for EPF Account 2 of 40% (from 30%) for first-time home buyers? If so, we are likely to maintain status quo on our recommendations as these measures are unlikely to turn the sector into a bull-mode. In this scenario, we reckon either one of these may happen; (i) investors may TOP SLICE slightly as the market has bought ahead on positive news flows, (ii) investors may continue their trading stance until the next MPC meeting (potential OPR cut).
However, if there is significant easing of banking related measures, we believe the sector will warrant a major upgrade .
What if Budget-2017 sees none of the measures mentioned or no significant positive measures? Clearly, the market is expecting some good news since property stocks have been pricing this in of late. Hence, an absence of any of the above-mentioned news may result in sharp profit-taking activities amongst those that have run up substantially, namely the big-cap (>RM3.0b mkt cap) developers. Furthermore, all eyes will be on 2H16 sales where there are still some sales target risks and we expect investors to return to fundamentals, which may weigh on property shares.
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Maintain NEUTRAL on Developers . We have maintained all our CALLs on developers while TPs are mostly unchanged. Since our last sector report (2nd Sep 2016) where we recommended MATRIX as our Preferred Pick, its share price has rallied by 4.8% and is closer to our TP. We may consider an upward revision in MATRIX’s TP depending on what materializes during Budget 2017 especially if there are strong news flow on MVV, which could change the demand landscape of Negeri Sembilan. We believe the property sector is still undergoing a structural change as seen by the changes in sales momentum compared to 2010-14 and property prices are expected to be slightly weaker or flattish going forward, while developers sacrifice margins and land banks to roll out affordable housing products in the name of sales targets, which has margin compression implications. Our house banking sector view is that lending momentum is unlikely to differ from 1H16. We still expect Malaysia’s CY16E residential sales value to decline 2% YoY. Budget 2017 measures need to have not just a sentiment effect but a real fundamental impact on the physical market before we can reconsider a bullish sector call.
Changes in CALLs/TPs Developers New
Call New TP
(RM) Valuation (Discount to
PROPERTY RNAV) Valuation
(Discount to SoP)
New FD RNAV/SOP (RM)
Quantum of TP revision
Call Action
UEMS UP 1.00 -77% -77% 4.28 0% Maintain
IOIPG MP 2.57 -54% -54% 5.56 0% Maintain
SPSETIA MP 3.40 -39% -39% 5.55 0% Maintain
SUNWAY MP 3.23 -61% -36% 5.03 0% Maintain
ECOWLD OP 1.58 -51% -46% 2.91 0% Maintain
MAHSING MP 1.60 -48% -41% 2.72 5% Maintain
UOADEV MP 2.54 -36% -36% 4.00 0% Maintain
MRCB MP 1.33 -72% -23% 1.72 0% Maintain
KSL UP 0.99 -86% -86% 7.07 -10% Maintain
MATRIX OP 2.65 -25% -25% 3.51 0% Maintain
CRESNDO MP 1.60 -75% -75% 6.32 0% Maintain
HUAYANG MP 1.37 -48% -48% 2.64 0% Maintain
Note: For further details and explanation, please refer to APPENDIX Source: Kenanga Research
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APPENDIX
YTD Performance of Big Cap Developers (>RM3b mkt cap)
Source: Bloomberg, Kenanga Research
YTD Performance of Small -mid Cap Developers (<RM3b mkt cap)
Weighted Average -53% -46% 0% Weighted Average -54% -47% Simple Average -56% -49% 0% Simple Average -56% -49%
Source: Kenanga Research
CALLs/TPs (Part 2 of 2) Developers Comments UEMS No changes to CALL/TP. We note that the stock has been perceived to be a potential GE theme play. Nonetheless, we remain concern of their earnings prospects and if
insufficient disposal of assets takes place, cash calls are likely. IOIPG No changes to CALL/TP. SPSETIA No changes to CALL/TP. SUNWAY No changes to CALL/TP. ECOWLD No changes to CALL/TP. MAHSING No changes to CALL but slightly higher TP. The revised TP has an implied FY17E PER of 9.9x which is still below its 7-yr mean of 10.9x while TP implied yield still offers higher
than peer average yields of 4.1%. UOADEV No changes to CALL/TP. MRCB No changes to CALL/TP. KSL No change to call but lower TP on lower earnings and unchanged 5.5x FY17E PER. Earnings has been reduced due to FY17 weak prospects and thus a 30% cut to FY17E sales
target and thus 8% cut in FY17E earnings. MATRIX No changes to CALL/TP. CRESNDO No changes to CALL/TP. HUAYANG No changes to CALL/TP (ex-bonus). Our TP is driven by the 48% discount to its FD RNAV. However, we lowered FY18E earnings by 10% as we reduced FY18E sales by 19%.
TAMBUN INDAH LAND BHD 1.50 640 6.0 6.3 5.9 5.1% 23.5% 1.3 106.9 101.6 108.8 -5.0% 7.1% 1.57 BUY
* Core NP and Core PER
** Crescendo per share data is based on non-Fully Diluted
^ Last price and TP is Ex-rights and Ex-Bonus.
Source: Kenanga Research
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DEVELOPERS FWD PBV
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DEVELOPERS FWD PER
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Stock Ratings are defined as follows: Stock Recommendations OUTPERFORM :A particular stock’s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). MARKET PERFORM :A particular stock’s Expected Total Return is WITHIN the range of 3% to 10%. UNDERPERFORM :A particular stock’s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). Sector Recommendations*** OVERWEIGHT :A particular sector’s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). NEUTRAL :A particular sector’s Expected Total Return is WITHIN the range of 3% to 10%. UNDERWEIGHT :A particular sector’s Expected Total Return is LESS than 3% (an approximation to the
12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). ***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage.
This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies.
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