Absence of earnings surprises in property outlook

TheStar Mon, Jul 20, 2020 09:12am - 3 years View Original


KUALA LUMPUR: AmInvestment Bank Research has kept its "neutral" outlook on the property sector as it does not anticipate earnings surprises over the short-to-medium term.

According to the group, property developers under its coverage will remain profitable in FY20-21 on unbilled sales but remains cautious of the financial leverage of some companies.

"Based on our data, the net gearing of developers under our coverage is still under control, averaging at about 36% while interest coverage remains strong at circa 8x," it said.

Crest Builder has the highest net gearing at 92% although the borrowing are used to finance its concession business where payment receipts are guaranteed by the government.

Meanwhile, Ecoworld's net gearing stands at 67% and SP Setia's at 60%.

AmInvestment expects some positive impact from the Penjana stimulus plan, notably the reintroduction of the home ownership campaign with stamp duty exemption and the exemption of real property gains tax for Malaysians for the disposal of residential properties.

The research house's top sector pick is IOI Properties Group Bhd (FV: RM1.52), which is banking on strong contribution from its property development projects, especially in China and Singapore.

Meanwhile, AmInvestment has a positive long-term outlook on REITs due to the improving Covid-19 situation in Malaysia and government stimulus plans.

"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," it said.

The research house has "buy" recommendations on Pavilion REIT (FV: RM1.99) and YTL Hospitality REIT (FV: RM1.36).

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