Property Devt & Invt - Post-GST blues?
Recommendation: Neutral
The property sector was one of the better performing sectors in 2014 but that will be difficult to sustain in 2015 in view of the imminent implementation of the 6% goods and services tax (GST) starting Apr 1. 2015 is going to be another tough year for developers in terms of sales and investors should be selective in their exposure to property stocks. We downgrade the property sector from overweight to Neutral while downgrading UEM Sunrise from buy to Hold and SP Setia from hold to Reduce. Our top picks remain the top-2 best-managed companies in the sector, Mah Sing Group and Eco World. They have the best chances of bucking the softer sales trend.
We downgrade the property sector from overweight to Neutral while downgrading UEM Sunrise from buy to Hold and SP Setia from hold to Reduce. Our top picks remain the top-2 best-managed companies in the sector, Mah Sing Group and Eco World. They have the best chances of bucking the softer sales trend.
2014 outperformance
The property sector eased 0.6% in 2014, outperforming the KLCI's steeper 5.7% fall. For most of the year, the best performing property stocks were largely smaller cap names. The only relatively large cap developer that performed strongly for most of last year was E&O on the back of the final approval for its massive reclamation project as well as the management's acquisition of a block of shares from Sime Darby at a large premium. Eco World, SP Setia and UOA Dev also recorded gains in 2014.
2015 will be tricky
Developers faced a slow 1H14 on the back of the 2014 Budget measures to curb speculation announced in Oct 2013. But property sales started to pick in 2H14 on the back of renewed confidence and expectations that property prices will rise after GST is implemented. We believe this pick up in buying momentum will continue in 1Q15, but buyers will likely adopt a wait-and-see attitude for 6-9 months after that, which would be in line with the typical consumer behaviour experienced in most countries that implemented GST. The net effect is that 2015 could end up being a similar year to 2014 in terms of property transactions, which we would categorise as a lacklustre year.
Widening RNAV discount
In 2014, only Mah Sing and Eco World appear to have bucked the weak sales suffered by most developers. We believe Mah Sing should manage to exceed its 2014 new sales by 10-15% while Eco World exceeded its RM2bn sales target by a massive 60%. But with another tough year ahead in 2015, we widen the discount to RNAV for most developers as weaker sales will translate into slower earnings growth. We are widening the discount to RNAV for developers by up to 20%pts.
Source: CIMB Daybreak - 05 January 2015
Recommendation: Neutral
The property sector was one of the better performing sectors in 2014 but that will be difficult to sustain in 2015 in view of the imminent implementation of the 6% goods and services tax (GST) starting Apr 1. 2015 is going to be another tough year for developers in terms of sales and investors should be selective in their exposure to property stocks. We downgrade the property sector from overweight to Neutral while downgrading UEM Sunrise from buy to Hold and SP Setia from hold to Reduce. Our top picks remain the top-2 best-managed companies in the sector, Mah Sing Group and Eco World. They have the best chances of bucking the softer sales trend.
We downgrade the property sector from overweight to Neutral while downgrading UEM Sunrise from buy to Hold and SP Setia from hold to Reduce. Our top picks remain the top-2 best-managed companies in the sector, Mah Sing Group and Eco World. They have the best chances of bucking the softer sales trend.
2014 outperformance
The property sector eased 0.6% in 2014, outperforming the KLCI's steeper 5.7% fall. For most of the year, the best performing property stocks were largely smaller cap names. The only relatively large cap developer that performed strongly for most of last year was E&O on the back of the final approval for its massive reclamation project as well as the management's acquisition of a block of shares from Sime Darby at a large premium. Eco World, SP Setia and UOA Dev also recorded gains in 2014.
2015 will be tricky
Developers faced a slow 1H14 on the back of the 2014 Budget measures to curb speculation announced in Oct 2013. But property sales started to pick in 2H14 on the back of renewed confidence and expectations that property prices will rise after GST is implemented. We believe this pick up in buying momentum will continue in 1Q15, but buyers will likely adopt a wait-and-see attitude for 6-9 months after that, which would be in line with the typical consumer behaviour experienced in most countries that implemented GST. The net effect is that 2015 could end up being a similar year to 2014 in terms of property transactions, which we would categorise as a lacklustre year.
Widening RNAV discount
In 2014, only Mah Sing and Eco World appear to have bucked the weak sales suffered by most developers. We believe Mah Sing should manage to exceed its 2014 new sales by 10-15% while Eco World exceeded its RM2bn sales target by a massive 60%. But with another tough year ahead in 2015, we widen the discount to RNAV for most developers as weaker sales will translate into slower earnings growth. We are widening the discount to RNAV for developers by up to 20%pts.
Source: CIMB Daybreak - 05 January 2015
