Malaysian property developers benefit from Singapore cooling measures.
According to Macquarie Equities Research, with the Malaysian physical market still going strong and Singapore introducing further onerous measures to cool the domestic property market, it sees Malaysian property developers as benefiting from rising demand for their property, especially in the current low interest rate environment.
Macquarie Equities Research is therefore moving to Overweight position on the Malaysian property sector from Neutral, with UEM Land as our top pick for 2013.
Tightening, if any, could have least impact on Johor: The key risk from our perspective over the past 12 months has been the potential for tightening by Bank Negara to curb price rises. While we would not discount the possibility of more measures being introduced, we prefer to be in the market which would be least impacted should tightening measures be introduced.
We are therefore shifting our preference to Johor over Klang Valley as the top market in Malaysia for 2013. With affordability ratio in Johor still well below average levels, we believe that property launches in the region will see strong demand even if lending is tightened further.
Election fears overblown: Property developers have largely underperformed the broad market since last year pending general elections in Malaysia. We believe these fears are overblown, as companies under our coverage have already accumulated plenty of land bank for future development.
SP Setia and Mah Sing have undeveloped land bank with GDV of RM56bn and RM19bn respectively. In comparison, their new sales targets for 2013 are RM5bn and RM3bn respectively. UEM Land is the single largest listed owner of land bank in Iskandar, and with significant private investment already flowing through to the region, we believe it is unlikely this will be reversed whatever be the outcome of the general elections.
2013 could be the tipping point for earnings: While 2012 was famously regarded as the tipping point for Iskandar region, we believe 2013 would be the tipping point for the earnings of property developers, particularly our top pick UEM Land. Our earnings estimates are 44% above consensus for 2013 for UEM Land and 20% above consensus for the rest of the peer group.
Outlook Upgrading Property sector to Overweight, UEM Land is our top pick: Strong earnings outlook coupled with reasonable valuations makes for a solid investment case in favour of the Malaysian property sector, in our view.
Malaysian developers currently trade at ~1.3x 2013E P/BV vs their ASEAN peers, which average 2.5x and 14.5x 2013E PER vs. 18x for their ASEAN peers. Our top pick, UEM Land, trades at a 20% discount to our RNAV estimate and one standard deviation below its historical average on a forward P/BV basis.
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