Malaysia’s Property Sector: Navigating Challenges Amidst Recovery
The Malaysian property sector, after experiencing a renaissance over the past year, remains vulnerable to significant headwinds. According to Kenanga Research, despite recent gains, challenges such as oversupply, high household debt, elevated interest rates, and weakened consumer sentiment due to high inflation and rising living costs continue to pose risks to the sector.
Current Market Overview
Kenanga Research highlighted that the market has already priced in the immediate to short-term impact of data centre investment and Johor’s economic transformation on the sector. However, the research house sees potential in the affordable housing segment, which could serve as a bright spot amidst the challenges.
Property Index Performance
Bursa Malaysia’s Property Index reached a six-year high in June, touching 1,149.07 points – its highest since September 2018. At the mid-day break today, the index was up 7.95 points or 0.7% to 1,088.84 points, marking a 57.7% increase over the past year. This index tracks property sector-linked stocks on the local bourse.
Kenanga’s Ratings and Recommendations
Despite the sector’s gains, Kenanga Research maintained its “underweight” rating on the property sector. The research house also downgraded several property developers, citing that their valuations have become rich after the recent run-up in share prices. Specifically:
- Mah Sing Group Bhd was downgraded to ‘market perform’ with a target price (TP) of RM1.87.
- Sime Darby Property Bhd was downgraded to ‘underperform’ with a TP of RM1.08.
- UOA Development Bhd was downgraded to ‘underperform’ with a TP of RM1.79.
On a year-to-date basis, Sime Darby Property’s shares soared 121%, Mah Sing was up 119.5%, while UOA Development rose only 6.9%.
Top Sector Pick: MKH Bhd
Kenanga Research’s top pick for the sector is MKH Bhd, with a target price of RM1.83. The research house based this recommendation on several factors:
- Focus on Affordable Housing: MKH Bhd’s focus on homes priced below RM500,000 caters to the strong demand from first-time house buyers.
- Transit-Oriented Development Projects: These projects are expected to benefit from the fuel subsidy rationalisation.
- Expanding Plantation Business: MKH Bhd’s expanding plantation business in Kalimantan, and its proximity to Indonesia’s new capital city of Nusantara, provides additional growth potential.
Conclusion
While Malaysia’s property sector has shown signs of recovery, significant challenges remain. Oversupply, high household debt, elevated interest rates, and inflation continue to impact consumer sentiment and sector stability. However, opportunities in the affordable housing segment and strategic investments like those of MKH Bhd offer potential pathways for growth.
