This article first appeared in Capital, The Edge Malaysia Weekly on September 11, 2023 - September 17, 2023

THE property sector has been in the limelight lately with the share prices of some counters, especially the ones with exposure in the Johor property market, leaping between twofold and threefold this year. This is reflected in Bursa Malaysia’s Property Index, which surged more than 34.41% year to date (YTD) and outperformed the benchmark FBM KLCI.

Investors who bought into property stocks at a low over the years — when others shied away because of weak market sentiment, expensive borrowing costs, an ongoing property glut and higher cost of living — should be laughing all the way to the bank now.

However, analysts are less sanguine. MIDF Research has a “neutral” outlook on the sector even though it expects a lift in property sales and an improvement in the Johor market, given the upcoming Rapid Transit System (RTS) that will link Johor Bahru and Singapore.

“In the recently concluded 2QCY2023 earnings reporting season, most of the property companies reported earnings that were within expectations, except for IOI Properties Group, whose earnings fell short of expectations.

“Most of the property companies reported new sales that were on track to meet management sales targets. New property sales are expected to be marginally better going forward due to better buying sentiment and pause of OPR (overnight policy rate) hike by Bank Negara Malaysia,” the research house says in a Sept 4 report.

According to Maybank IB Research, the designation of Forest City as a special financial zone (SFZ) has raised the development potential of southwestern Johor. “This strategic move not only fosters economic diversification and balances growth in the different regions of Iskandar Malaysia (IM) but it also offers sizeable job creation potential and heightens IM’s investment attractiveness.

“Local developers that focus on affordable landed properties in the region should benefit from the spillover effects from the SFZ. We are still ‘neutral’ on the sector,” says the research house.

This bullishness seems to have spilled over into construction, as evident from the 17.1% YTD gain in Bursa’s Construction Index.

It is worth noting that the top five constituents of the index are Gamuda Bhd, IJM Corp Bhd, Sunway Construction Group Bhd, WCE Holdings Bhd and Kerjaya Prospek Group Bhd.

Kenanga Research points out that there was “a slight sequential deterioration” in earnings delivery by the construction sector in 2QCY2023, against its expectations.

Nonetheless, the research house says it remains bullish on the sector, with the expectation of stronger work progress in the second half of the year on the back of mega infrastructure projects.

The projects include the RM45 billion Mass Rapid Transit 3 (MRT3), Penang’s RM9.5 billion Light Rail Transit (LRT) and six nationwide flood mitigation exercises reportedly worth RM13 billion.

“There is an accelerated disbursement of the massive RM97 billion gross development expenditure budgeted under Budget 2023. Similarly, there are opportunities in private-sector building jobs underpinned by massive investment in new semiconductor foundries and data centres,” Kenanga says in a Sept 7 report.

Apart from property and construction counters, companies in utilities, oil and gas (O&G) and transport and logistics are also among the top sector performers on Bursa this year.

Bursa’s Utilities Index has gained 28.8% YTD, followed by the Energy Index’s surge of more than 11.4% and Transport & Logistics Index’s 7.98% rise.

The energy sector enjoyed fresh interest last week following the recent rally in global crude oil prices. Brent oil rose to US$90 a barrel for the first time since last November when The Organization of the Petroleum Exporting Countries and its allies (OPEC+) extended supply cuts that tightened the oil market. Both Saudi Arabia and Russia have said they will review the supply cuts monthly, and will modify them depending on market conditions.

Energy counters inched up despite weakness in the broader market FBM KLCI, which tracks the top 30 largest companies on Bursa based on market capitalisation.

The FBM KLCI is down 2.37% YTD, which perhaps makes for a gloomy market outlook for the rest of the year. With just a little more than three months to the year end, it is one of the worst performers in the region. Singapore’s Straits Times Index is down 0.76% while Indonesia’s Jakarta Stock Exchange is up 1.52%.

Faring much better are the Taiwan Stock Exchange, which is up 17.55%; North Korea’s Kospi at 13.94% and Japan’s Nikkei 225 at 26.43%.

One of the reasons for FBM KLCI’s weakness could be that foreign investors have been net sellers of stocks on Bursa, amounting to RM2.56 billion YTD, according to MIDF Research.

While interest in the big cap companies may be lagging, small to mid cap companies have done better as reflected in the gains in the FBM Mid 70 and FBM Midcap Indices of 9.4% and 9.8% respectively this year.

The FBM Midcap Index measures companies on Bursa with a market capitalisation of between RM200 million and RM2 billion.

The healthcare sector enjoyed a good run in the first half of the year before losing steam. The Healthcare Index is 1.88% lower YTD, compared with a 9.7% YTD gain.

For the first five months, the index grew 11% but subsequently gave up the gains because of weakness in glove manufacturers’ share prices and Pharmaniaga Bhd’s woes, which included massive impairments and slipping into PN17 status.

Interestingly, since last Monday, glove manufacturers appear to be back on the radar screen of investors but it remains to be seen if the interest is sustainable.

Top Glove Corp Bhd gained as much as 14.3% from Sept 4 to 7, Hartalega Holdings Bhd, 8.12%, Supermax Corp Bhd, 7.8% and Kossan Rubber Industries Bhd, 4.55%.

For the second half of the year, Kenanga Research is bullish on the healthcare sector’s long-term outlook, underpinned by the ageing population, rising affluence and increasing cases of chronic diseases globally.

“There was a slight sequential deterioration in earnings delivery (against our expectations) by the sector in the recently concluded 2QCY2023 results.

“Generally, private hospitals under our coverage were hit by fewer patients seeking treatment during the festive months,” it says in a report. The research house considers lower patient numbers in hospitals in 2Q2023 as “a blip” as both IHH Healthcare Bhd and KPJ Healthcare Bhd expect patients to return in the subsequent quarters. This was seen from July.

Meanwhile, the Plantation Index has declined marginally this year despite crude palm oil (CPO) prices dropping more than 10% to RM3,750 per tonne YTD.

MIDF Research has projected that CPO prices will remain subdued this year, averaging at RM3,500 per tonne before improving next year to between RM3,800 and RM4,200 per tonne due to weather conditions.

It remains “neutral” on the sector in view of the fragile demand outlook on the back of inflationary pressures coupled with tight household spending on high base interest rates locally and globally. “We anticipate demand to be sluggish in 2HCY2023,” it says in a Sept 6 report.

Amid the tepid CPO prices, a corporate exercise has been proposed involving Kuala Lumpur Kepong Bhd (KLK) and Boustead Plantations Bhd (BPlant). Late last month, KLK proposed to buy 739.2 million shares or a 33% stake in BPlant for RM1.15 billion or RM1.55 per share and extended a mandatory general offer to other shareholders.

Meanwhile, Bursa’s Financial Services Index is not reflecting the sector’s strong earnings as it is only up 0.05% YTD and down 1.22% year on year.

In the second quarter, big banks such as Malayan Banking Bhd, Public Bank Bhd and CIMB Group Holdings Bhd turned in a stellar performance but Maybank IB Research points out that it was the opposite for mid-sized banks such as AMMB Holdings Bhd and RHB Bank Bhd.

“Hong Leong Bank Bhd’s results came in within expectations while AMMB disappointed. RHB’s results were above expectations but earnings disappointed at the operational level and its bottom line was bolstered by substantial writebacks in provisions, which is unlikely to be sustainable.

“Among the smaller cap banks, BIMB had a decent quarter while Alliance Bank Malaysia Bhd’s results were below expectations,” Maybank IB says.

Nonetheless, it says it remains positive on the banking sector this year and estimates core net profit to grow 9.1% and 6.1% in 2023 and 2024 respectively.

“Dividend payout ratios are generally at if not above pre-Covid levels and dividend yields for most banks today are above 5% with the exception of AMMB, HL Bank and Public Bank,” it adds. 

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