Despite mixed earnings results from the second quarter of 2024 (2Q24), UOB Kay Hian Research (UOBKH Research) remains optimistic about the Malaysian property sector. The research house acknowledged that while some companies under its coverage fell short of expectations, overall industry performance was strong, and future growth prospects look positive.
Mixed Earnings for 2Q24
UOBKH Research covers eight firms within the property sector, with 2Q24 results being a mixed bag. Four companies delivered results in line with expectations, three underperformed, and one exceeded projections. Key reasons for underperformance included external factors such as international projects and construction delays.
For instance:
- S P Setia Bhd faced a shortfall due to a significant impairment on its Battersea projects in Britain.
- UEM Sunrise Bhd struggled with lower-than-expected progressive billings, attributed to delays in construction and raw material deliveries.
- IOI Properties Group Bhd (IOIProp) saw weaker-than-anticipated earnings from its operations in China.
However, Sunway Bhd exceeded expectations, driven by higher progressive billings across its property and construction segments.
Strong Year-on-Year Performance
Despite the challenges faced by some companies, UOBKH Research reported that the overall net profit for the property sector saw significant growth:
- 26% quarter-on-quarter (q-o-q) increase in net profit
- 60% year-on-year (y-o-y) net profit growth in 2Q24.
This indicates that the sector is on an upward trend, driven by strong property sales and ongoing construction activities.
Leading Players and Strong Sales
Among the top performers:
- Lagenda Properties Bhd (Lagenda) achieved record-breaking sales, with a 19% y-o-y surge in 2Q24, reaching RM300 million — the highest quarterly sales in the company’s history.
- Sime Darby Property Bhd (SimeProp) saw 45% y-o-y sales growth, prompting the group to revise its full-year sales target to RM3.5 billion, up from RM3 billion.
UOBKH Research also highlighted that companies like SimeProp and Eastern & Oriental Bhd exceeded consensus estimates on strong progressive billings.
Positive Outlook for 2H24
Looking ahead to the second half of 2024 (2H24), UOBKH Research anticipates stronger earnings from nearly all companies under its coverage, except for S P Setia and IOIProp.
- S P Setia is expected to see lower land sales in 2H24.
- IOIProp may face weaker results in the early quarters of FY2025 due to rising interest costs from its IOI Central Boulevard project in Singapore, which will be fully operational by October 2024.
Nonetheless, UOBKH Research remains optimistic about IOIProp’s potential to surprise on the upside, especially with recent high-value launches and the possibility of better-than-expected sales from its Marina View project in Singapore.
Sector-Wide Growth Projections
Excluding land sales, the sector’s net profit for 2024 and 2025 is expected to grow by 13% and 20%, respectively. This growth will be driven by:
- Higher progressive billings from strong property sales and new launches.
- Record-high property transactions across Malaysia, coupled with falling oversupply.
- Rising land values fueled by new special economic and financial zones, increased demand for data centres, and major infrastructure projects.
Impact of Sinkholes and New Regulations
UOBKH Research noted that August 2024 share prices for property companies were impacted by negative sentiment following the emergence of sinkholes in Kuala Lumpur, which led to the suspension of construction approvals in the capital.
The new regulations now require geotechnical studies by certified engineers to be included in planning permission applications. However, developers in Kuala Lumpur, such as Mah Sing Group Bhd, have assured that they have been compliant with all necessary regulations, including geotechnical requirements.
UOBKH Research’s “Overweight” Call on the Property Sector
Despite some short-term challenges, UOBKH Research maintains an “Overweight” rating on the Malaysian property sector. The research house believes the sector is in a long-term uptrend, supported by:
- Record-high investments in Malaysia over the last few years.
- The expansion of industrial developments, providing developers with new opportunities and reducing reliance on residential projects.
- Growing demand for industrial real estate and data centres, driven by Malaysia’s position as a hub for technology and industry.
Top Picks: IOIProp, Lagenda, and Mah Sing
UOBKH Research’s top picks in the property sector include:
- IOIProp with a target price of RM3
- Lagenda Properties at RM2.32
- Mah Sing Group at RM2.29
These companies are well-positioned to benefit from the current market conditions, strong sales, and strategic expansions, making them attractive investment options for those looking to capitalize on Malaysia’s booming property market.
Conclusion
In conclusion, UOB Kay Hian Research remains bullish on the Malaysian property sector, despite some mixed performances in 2Q24. With strong sales, progressive billings, and continued investment in high-growth areas, the sector is poised for significant growth in the coming years. The long-term outlook for property developers remains positive, with UOBKH Research’s “Overweight” rating reflecting confidence in Malaysia’s real estate market.
