PETALING JAYA: The Malaysian property and real estate investment trust (REIT) sector is expected to remain lacklustre in the next 12 months due to the challenging outlook, according to AmInvestment Bank Research (AmResearch).
It elaborated that the implementation of the movement control order (MCO) from March 18 to May 12, 2020 put the local economy on pause for almost two months, and this has led to most developers still assessing the economic situation, and deliberating whether to continue or defer future launches.
“We believe consumer sentiment remains weak for the time being with spending mainly focused on necessities while big-ticket items such as properties take a back seat,” it said in a report.
AmResearch said developers under its coverage. such as SP Setia, MRCB, Ecoworld, Titijaya Land and UEM Sunrise. have a reasonable amount of unbilled sales, hence they will remain profitable in FY20–FY21.
It noted, however, that many of the projects are still in their early stages, thus there is not likely to be strong revenue recognition in the next 12 months.
“On the other hand, we remain cautious on the financial leverage of some companies as it is one of the key factors to their survivability during an economic downturn,” AmResearch added.
Based on its data, the research house found that the net gearing of developers under its coverage is still under control with an average of 36%, while interest coverage remains strong at about 8 times.
It noted that Crest Builder has the highest net gearing at 92%, followed by Ecoworld’s 67% and S P Setia’s 60%.
AmResearch expects the affordable segment to perform better driven by its mass market, particularly demand from young professionals and families, due to continued urbanisation.
Aside from that, the research house said the reintroduction of the home ownership campaign with stamp duty exemption to purchase residential properties priced RM300,000-RM2.5 million and the exemption of real property gain tax for Malaysians on the disposal of residential properties made from June 1, 2020 to December 31, 2021 are positive news for developers, as they will improve the overall sentiment of house buyers and the residential property market in Malaysia.
On the whole, it is maintaining a neutral rating on the property sector, with its top pick being IOI Properties Group with a buy recommendation on a fair value of RM1.52
IOI Prop is banking on a strong contribution from its property development projects, particularly in China and Singapore. The group is also is planning to launch its Xiamen 2 project in China progressively.
As for the REIT sector, it views the long-term outlook as positive, given the diminishing rate of Covid-19 infections in Malaysia while several stimulus plans by the government provide greater earnings visibility.
“Furthermore, Malaysian REITs’ dividend yields of more than 4% on average for FY20 and more than 5% for FY21 and beyond, offer attractive returns compared to the current low interest rate environment.”
For the sector, the research house has a buy recommendation for Pavilion REIT with a fair value of RM1.99, and YTL Hospitality REIT with a fair value of RM1.36.
