Affin Hwang Capital is lowering its hold on Amcorp Properties Bhd (AmProp) due to a hold up in their Campden Hill project in Kensington, London. The project which comprises 72 units of homes housed within 4 blocks will only be partially completed by the February 2017 as opposed to their original completion date of late 2016.
While the delay was caused by a debate in the finishing materials to be used, Affin Hwang Capital is now downgrading its call as they are afraid that the Brexit will affect the property sales as AmProp is heavily invested in London with 90% of their earnings derived from the country.
The reason for this caution are reports that buyers are already more cautious in their purchase of properties in London, because if multinational companies, corporations and banks were to move out, there will be a decline in the demand for residences.
Affin Hwang Capital is however still cautiously optimistic as they believe that the “charms and offerings” of London will still play a huge role in attracting buyers. However, due to the delay in the Kensington project, profits are expected to drop slightly in the following year.
According to The Sun Daily, due to the delay, Affin Hwang Capital will be cutting AmProp’s FY17E earnings per share (EPS) by 28%. The cut also takes into account the drop weaker exchange rate which is estimated at approximately RM5.5 per sterling instead of the original RM6 per sterling. Any further decreases in the sterling against the ringgit by a minimum of 1% will result in further readjustment.
There is however still another ongoing project, The Burlington Gate in Mayfair. Expected to be completed in the first quarter of 2018, this project already has a take-up exceeding 90% and is expected to boost the company’s earnings.
In the pipelines, Affin Hwang Capital also has a number of new projects coming up, including the Bankside Quarters development which Affin Hwang Capital is partnered with Temasek of Singapore, and the Kilmuir House in Belgravia which was acquired by Affin Hwang Capital and will be redeveloped by them.
Affin Hwang Capital is hence still rather confident as their long term prospects are still intact with their rather strategic locations. The company’s stocks are however still at risk with the uncertainty of Brexit, which may affect future sales of the developments and in turn affect the company’s profit and earnings. And as the profit is only calculated upon the completion of a project, the earnings will only be visible in the final quarter of 2017, which could stretch the patience of investors with vested interest in the stock.
According to Affin Hwang Capital, they said, “We estimate that the implied discount to the property segment’s RNAV is closer to 63% currently and has ranged between 55% and 65% over the past year. With the TP revision and increased risk profile, we downgrade the stock to a ‘hold’ from a ‘buy.”
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Diane Foo Eu Lynn, Senior Content Specialist at PropertyGuru, edited this story. To contact her about this or other stories email diane@propertyguru.com.my
