- Overplayed pre-GST theme, developers turning cautious, post GST , and waning price catalysts are our observations for the sector in 2015.
- Property stocks currently trade at 36-66% discount to our RNAV estimates, fairly reflecting their short-term outlook.
- Maintain NEUTRAL on the sector; top pick is SP Setia.
What’s New
The property sector outlook remains challenging and we are likely to see a lull in demand post-GST implementation that could last for 6-9 months due to affordability issues and subdued buyer sentiment/interest toward big ticket items. Developers are in the final push for sales before the implementation of the 6% GST in April 2015 by bringing forward their property launches and are now offering very attractive marketing packages.What’s Our View
We think the pre-GST theme is overplayed especially when banks have significantly tightened their criteria for mortgage financing. Housing affordability remains the issue to us.Presently, property stocks under our coverage are trading at 0.34-0.64x multiples to our RNAV estimates (versus their historical mean of 0.5-0.8x and the global financial crisis levels of 0.3-0.6x), which we believe fairly reflect their short-term subdued outlook.
We maintain our earnings forecasts but lower TPs by 12-20%. Our new TPs are based on P/RNAVs of 0.39-0.73x (from 0.49-0.83x). We continue to rate Eco World and SP Setia as BUYs; Glomac, Sunway and UEMS as HOLDs. We downgrade Mah Sing to HOLD.
While there is still concern over SP Setia’s management succession plan, downside risks to earnings and share price are limited. Catalyst includes potential asset injection by its major shareholder .
Source: Maybank Research - 7 Jan 2015
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