Public Investment Bank Research Sees Property Sector Recover To Pre-Pandemic Levels

June 21, 2021

Public Investment Bank Research Sees Property Sector Recover To Pre-Pandemic Levels

With herd immunity expected by year-end, Public Investment Bank Research sees the local property sector recover to pre-pandemic levels in tandem with the economy’s revival.

Its analyst Tan Siang Hing believes the property sales momentum will continue in the second half of the year, as the country’s vaccination programme gains more traction, reported The New Straits Times (NST).

He explained that the nascent recovery of the property sector in 2019 was circumvented by the COVID-19 pandemic induced economic calamity early last year, which made the sector ‘uninvestable’, weighed by overhang and affordability issues as well as economic stress.

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Tan noted that property players now stand on a stronger footing and have proved their resilience despite registering zero revenue over the past few months due to lockdown restrictions.

Based on new launches’ performance, demand for properties remain good.

SP Setia Bhd, for instance, registered encouraging sales during Q1 2021 despite the weak market sentiment.

“Cyclical stocks are starting to see recoveries picking up speed after the Covid-19 vaccination drive kicked off early this year. Hence, we upgrade our property sector call to ‘overweight’ on the expectation that sector valuations will improve with better pre-sales kicking in,” said Tan as quoted by NST.

Public Investment Bank revealed that the property sector is trading at a 71% discount to book value.

Tan noted that that while the property sector used to be fragmented, it is now getting more concentrated with big players such as S P Setia Bhd, Eco World Development Group Bhd (EcoWorld), Sime Darby Property Bhd, Gamuda Land Bhd and IOI Properties Group Bhd commanding a larger chunk of total new sales.

“We prefer property developers with good sales track record and would benefit more with the established branding to ride on the cyclical recovery. These players, we reckon, could benefit the most if the sector rebounds going into next year with their scale advantage and well-located land bank with low holding costs,” said Tan.

On EcoWorld, Tan said the group’s target price (TP) of 98 sen effectively prices the company at 40% discount to its book value.

He expects EcoWorld to meet its RM2.87 billion sales target for the financial year 2021, with sales rebounding further to RM3 billion to RM4 billion levels in the coming years as Malaysia’s economy recovers.

Tan does not discount a further re-rating for the stock in the event the group continue to scale new heights and ride out of the economic storm.

Meanwhile, he sees good earning visibility for S P Setia, underpinned by RM10.05 billion in unbilled sales.

“Group pre-sales for FY2020 was RM3.82 billion, surpassing its revised FY2020 sales target of RM3.8 billion. The TP of RM1.25 (for S P Setia) is based on an unchanged 0.4 times of FY21 price-to-book value,” said Tan.

 

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