Property sector: Anticipated robust sales in 4Q21 with pent-up demand could lead to strong 2022 earnings recovery — UOB Research

TheEdge Tue, Nov 09, 2021 11:12am - 7 months View Original


KUALA LUMPUR (Nov 9): While developers’ property sales in the upcoming third quarter of 2021 (3Q21) financial reports could be weak amid the lockdown, UOB Research expects it to be more resilient this time versus 2Q20’s lockdown, thanks to ongoing digitalisation efforts (virtual marketing). 

This, it noted, was evident in the higher mortgage application and approval value in 3Q21 at RM67.5 billion and RM24 billion respectively (vs 2Q20’s RM42.5 billion and RM12.1 billion) following a good uptick in September 2021. 

“Positively, 4Q21’s property sales are poised to rebound strongly with the economic reopening-induced pent-up demand,” UOB Research said in a Tuesday report.  

“We expect some developers like S P Setia [Bhd], Eco World Development [Group Bhd], and Sunway [Bhd] to exceed their full-year sales target amid good bookings momentum. This should see higher earnings spillover into 2022 given the recovery in construction activities,” it added. 

Year to date (YTD), UOB Research said the sector has outperformed the FBM KLCI by 16% (vs 2020’s -6%), mainly driven by Eco World’s 88% and S P Setia’s 46% gain YTD.

“This more than offsets their 24% and 27% losses respectively in 2020. In particular, the sector saw an 11% gain in October 2021 vs KLCI’s 2% gain. 

“The reopening of the economy since mid-September appears to have catalysed a rotational play into the cyclical sector as we previously expected, given an anticipated pent-up property sales as seen in 1Q21. The sector is currently trading at 1SD (standard deviation) above its five-year historical mean P/B, approaching its pre-Covid-19 level,” it noted. 

The foreign research house maintained its "market weight" call on the property sector and is turning selective. 

“We are cautiously optimistic and selected defensive builders like Matrix Concepts Holdings [Bhd] (Buy/Target: RM2.50) as our top pick, given its: a) above industry margin, b) attractive PB vs ROE among its peers, c) sustainable dividend yield at 6%, and d) low gearing ratio. 

“We also like Sunway (Buy/Target: RM2.25) for being a proxy of the economic reopening and its strong healthcare growth trajectory. Notable small-cap growth stocks with strong earnings visibility include Kerjaya Prospek Property [Bhd] (Buy/Target: RM1) and NCT Alliance [Bhd] (GFLO MK/NR),” it said. 

“Anticipated robust sales in 4Q21 with pent-up demand could lead to a strong earnings recovery in 2022. However, sales may normalise or potentially contract in 2022 amid rate hikes and a lack of incentives to spur buying activities. Earnings could tail off thereafter. The sector’s current valuation appears fair after the recent re-rating in view of the lack of catalysts in 2022,” it added. 

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