If you read the property outlook 2017 by CBRE-WTW and report by National Property Information Centre (NAPIC),
you likely would have noticed the undertone – softening residential
market and perhaps an even bigger problem lay in the overcapacity of
shopping mall (retail space per capita has exceeded Hong Kong &
Shanghai) and office tower (expected vacancies expected to rise to 32%
in 2021 from 24% in 2Q2017). And of course, a sharp slowdown in the
construction sector, which has the highest multiplier effect, will
probably lead to a general recession.
Source : The Star Online
Soft Property Market, No Slowdown
But,
at least as of now, there is no slowdown detected. In the same NAPIC
slide, both Q1 and Q2 2017 jolted notable increase in number of starts
on YoY basic.
NAPIC: Residential Market Inventories.
Construction Sector Is Still Growing
Let’s
try to check the latest Q32017 data from Bank Negara site. So far, the
construction sector is still growing. It must be noted that property
segment still account for more than 60% of all construction
activities.
Source: Bank Negara Website
Good Results from Long Steel Product Subsector
Current
quarterly results from steel – long (steel bar/billet/wire) subsector
is still showing growth. Revenue is largely growing on TTM (Twelve
Trailing Months), YoY & QoQ basic. Pretax margin for current
quarter is mostly higher than TTM basic, which means margin is still
expanding.
Reiterating that Construction Sector Is Still Growing
Similarly,
the biggest 5 construction companies by market cap are showing strong
revenue growth. Sharp contraction in QoQ earning for both Gamuda and
IJM can be attributed to one-off factor: the former due to impairment of
SMART tunnel while the latter due to inclusion of gain from land
disposal in the previous quarter.
And of course, we must be aware of a glut of railway projects to be awarded in the coming months.
Conclusion
Properties
segment’s softness will be compensated by ramp-up in the infrastructure
segment. Over time, the growth rate should converge to the national GDP
growth rate. That said, we must always remember both the properties and
construction sector are cyclical stocks. Just ride the wave to the top,
we may never know where the top is but on balance, there should still
be a few quarters more to go. Caution is necessitated in a general
bearish market but there is no need for over-reaction.
Disclaimer:
A sharing of personal investment idea and thought and is not a recommendation to buy or sell.
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