Property sector to revive to pre-pandemic levels, says Public Investment Bank Research
The local property sector is expected to revive to pre-pandemic levels in tandem with the economic recovery, says Public Investment Bank Research.
Its analyst Tan Siang Hing said in a note today that the property sector will recover, with herd immunity expected by end-2021.
Tan expects the property sales momentum to continue in the second half of 2021 (2H2021) as the vaccination programme gains more traction.
He noted that the property sector's nascent recovery in 2019 was circumvented by the pandemic-induced economic calamity in early-2020, which effectively reduced the sector to 'uninvestable', weighed by economic stress, affordability as well as overhang issues.
Tan pointed out that property players are now on a stronger footing with their 'kitchen-sinking' of inventories last year, and proving their resilience despite few months of zero revenue due to lockdown restrictions.
He said based on the performance of new launches, the appetite for properties is still good, with some properties taken up within days.
Tan cited SP Setia Bhd which had recently reported encouraging sales for the first quarter of 2021 despite the weak market sentiment
"Cyclical stocks are starting to see recoveries picking up speed after the Covid-19 vaccination drive kicked off early this year. Hence, we upgrade our property sector call to 'overweight' on the expectation that sector valuations will improve with better pre-sales kicking in," he said.
According to Public Investment Bank, the property sector is currently trading at a 71 per cent discount to book value.
Tan said the property sector, which used to be fragmented, is now getting more concentrated with the big developers such as S P Setia Bhd, Sime Darby Property Bhd, Eco World Development Group Bhd (EcoWorld), IOI Properties Group Bhd, and Gamuda Land Bhd commanding a bigger chunk of the total new sales.
"We prefer property developers with good sales track record and would benefit more with the established branding to ride on the cyclical recovery. These players, we reckon, could benefit the most if the sector rebounds going into next year with their scale advantage and well-located land bank with low holding costs," Tan said.
On EcoWorld, he expects the group to meet its financial year 2021 (FY21) sales target of RM2.87 billion, with sales to recover further to RM3 billion to RM4 billion levels in coming years as the economy recovers.
Tan said EcoWorld's target price (TP) of 98 sen effectively prices the group at 40 per cent discount to its book value.
He does not discount further re-rating of the stock should the group continue its impeccable track record to scale new heights and ride out of the economic storm.
For S P Setia, Tan said there is good earnings visibility, underpinned by unbilled sales of RM10.05 billion.
"Group pre-sales for FY20 was RM3.82 billion, surpassing its revised FY20 sales target of RM3.8 billion. The TP of RM1.25 (for S P Setia) is based on an unchanged 0.4 times of FY21 price-to-book value," Tan said