Analysts expect no surprises in Malaysian real estate earnings
PETALING JAYA: Analysts do not expect any surprises in the earnings outlook for the local real estate sector in the near to medium term, as developers are more aggressive in liquidating unsold units by offering discounts with inventory levels trending down. the drop
AmInvestment Bank Research (AmResearch) said developers generally reported a decline in new sales year-over-year of around 24.5%, due to the sluggish market and the impact of the movement control order (MCO) and the Covid-19 pandemic – for which he thinks the compensation. unsold units is a positive move to achieve cash flow.
For fiscal year 2020, the research house said financial results were well below expectations, with four of six companies under its coverage below expectations while two performed as expected.
“Real estate developers IOI Properties Group and Mah Sing are the only ones whose profits were in line with expectations while the results of Crest Builder, MRCB, SimeProp and SP Setia were below expectations,” he said in a report. .
AmResearch said that IOI’s real estate development segment recorded an 11.2% contraction to RM322.6 million in basic net profit for the first half of 2021, mainly due to the stronger contribution from projects in Malaysia and China.
Mah Sing’s fiscal 2020 results met his expectations, but profit for the period fell 25.1% year on year, mainly due to the impact of MCO on its first half 2020 results.
AmResearch noted that all companies reported lower fourth quarter 2020 profits, mostly attributed to slower recognition due to MCO.
“Most developers remain cautious and always assess the economic situation before deciding to continue or postpone future launches. We believe consumer sentiment will remain weak for now with spending mostly focused on basic necessities, while big ticket items such as properties will be on the decline for now. “
Overall, it reiterates a “neutral” view on the sector with a “buy” call on IOI Property with a fair value (FV) of RM 1.86 thanks to the strong contribution from real estate development projects in China and Mah Sing (FV: RM 1.28), supported by the strong utilization rates of its recent launches and its upcoming rubber glove business.
AmResearch said it could reconsider its stance on the sector if banks relax their mortgage lending policies or if consumer confidence improves significantly.
Likewise, Maybank Investment Research chose to maintain its positive tactical stance on the sector, believing that the worst is over for real estate and that it would be driven by a better economic outlook, a historically low interest rate environment and a pent-up demand.
Despite the re-imposition of conditional MCO and MCO in Q4’20-Q1’21, he observed that real estate sales continued to recover from the pandemic.
“Judging by the sales momentum in early 2021, most developers expect better sales prospects in FY21, although this may come at the expense of lower margins on pricing. lower. “
Maybank Investment Research said there was quarterly growth in real estate sales for the quarter due to pent-up demand after the foreclosure along with attractive marketing packages on offer.
Judging by the sales momentum in January-February 2021 and the rollout of the Covid-19 vaccination, he felt developers were becoming more positive on the sales outlook for FY21, as evidenced by their higher targets. for exercise.
“Nonetheless, we expect margins to remain subdued as competition continues to intensify. In addition, margins are under pressure due to the greater involvement of developers in the affordable housing segment.
Overall, the research house said the reimposition of MCO in Q1 2021 is expected to have less of an impact on sales, as most developers have acclimated to the “new normal” and ramped up their efforts to bring to market. their products through digital platforms.
Meanwhile, he identified political uncertainty and instability as one of the downside risks to his appeal, as well as potential delays in the vaccine rollout that will likely not be enough to end the pandemic. .
“Therefore, it may take longer to heal from a blow to jobs, investments and businesses.”
In addition, the end of the targeted loan repayment assistance program at the end of June 2021 could be a blow to the real estate market due to the surge in the number of properties auctioned.