Investments in Malaysia fuel long-term growth
“Property transactions are reaching all-time highs, oversupply is dropping, and investment in the real estate sector is on the rise.”-UOB Kay Hian Research
PETALING JAYA: UOB Kay Hian Research (UOBKH Research) is keeping its optimism on the property sector, despite acknowledging that second quarter (2Q24) earnings results for the companies under its coverage were a mixed bag.
The research house said among the eight firms it reports on, four had results that were in line with its expectations, three fell short, while one exceeded projections.
The research house said: “S P Setia Bhd’s results shortfall was due to a significant impairment on its Battersea projects in Britain, while UEM Sunrise Bhd’s (UEMS) weak results were due to lower-than-expected progressive billings, caused by delays in construction and deliveries of raw materials.”
At the same time, it said IOI Properties Group Bhd (IOIPROP) also reported weaker-than-expected earnings on lower-than-anticipated contributions from China, although Sunway Bhd exceeded expectations, driven by higher progressive billings from both the group’s property and construction segments.
Despite the performances of several companies coming in below forecasts, UOBKH Research said that industry players under its coverage recorded 2Q24 net profit growth of 26% quarter-on-quarter and 60% year-on-year (y-o-y).
Outside its coverage scope, the research house said that both Sime Darby Property Bhd (Simeprop) as well as Eastern & Oriental Bhd exceeded consensus estimates on strong progressive billings.
“Developers are on track to achieve their 2024 sales targets, having reached approximately 50% of their goals so far.
“Lagenda Properties Bhd (Lagenda) and Simeprop led the way with double-digit sales growth for the quarter, as the former’s 2Q24 sales surged 19% y-o-y to Rm300mil, marking the highest quarterly sales in the company’s history,” the research house said.
Simeprop also saw impressive sales growth, with 2Q24 sales increasing by 45% y-o-y, prompting the group to revise its full-year sales target upward to Rm3.5bil from Rm3bil.
For the second half of the year (2H24), UOBKH Research said it is expecting stronger earnings from almost all companies under its coverage, with the exception of S P Setia and IOIPROP. It added that S P Setia’s land sales quantum is expected to be much lower in 2H24.
“Meanwhile, Ioiprop’s first few quarterly results for its financial year ending June 2025 (FY25) may be weak as we will see a jump in interest costs from its IOI Central Boulevard project in Singapore as that becomes fully operational in October this year,” the research house said.
Nonetheless, it believes IOIPROP has the potential to surprise on the upside due to the higher-than-expected launches recently as well as possibility of better-than-anticipated sales of Marina View in Singapore.
Overall, it said excluding land sales gain, sector net profit for 2024 and 2025 are expected to grow by 13% and 20%, respectively, driven by higher progressive billings on higher property sales and launches.
On a separate note, the research house said August share prices for property counters were hit by negative sentiment, driven primarily by the emergence of sinkholes in Kuala Lumpur, which itself led to the suspension of construction approvals in the capital.
UOBKH Research reported that the latest directive now requires planning permission applications for buildings in the city to include a geotechnical study by certified engineers.
“We gather that these geotechnical study rules have been in place since 2022, and are not new regulations.
“Developers in Kuala Lumpur such as Mah Sing Group Bhd also reiterated that they have been following all the guidelines and are in compliance with all the requirements, including the necessary geotechnical studies, hence, they do not anticipate issues with ongoing projects or future launches,” it added.
Maintaining an “Overweight” call on the property industry, UOBKH Research believes a long-term uptrend has emerged in the sector, fuelled by record-high total investments in Malaysia over the past two to three years.
It said property transactions are reaching all-time highs, oversupply is dropping, and investment in the real estate sector is on the rise.
“This growth is supported by several key factors including the expansion of industrial developments, which provides developers with new expansion opportunities and reduces reliance on residential projects, as well as increasing land values driven by the establishment of special economic and financial zones, rising demand for data centres, and new infrastructure projects,” it noted.
Top picks for the sector are IOIPROP, Lagenda and Mah Sing, with target prices of RM3, RM2.32 and RM2.29, respectively.
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