KUCHING: Property developer stocks as well as real estate investment trusts (REITs) have been given a more bullish outlook as the stocks, having outperformed Bursa Malaysia’s main and property indices, are gaining even more traction with improving investor confidence and key projects to unfold moving forward.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research), in its own report dated March 28, had positioned most of developer stocks under it coverage for an improved outlook while remaining cautiously conservative on REITs in a separate report dated March 29.
“Back then, we postulated that investors should adopt a ‘Buy-on-Weakness’ strategy for developers, as we expected these stocks to hit floor prices, which were reflective of the 2008 GE (General Elections) scenario.
“However, none of our floor prices were ever seen as share prices held up well during the GE process,” the research team noted in a twin sector update yesterday.
It observed that the sectors had turned bullish where the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) year-end target had been upgraded to 1830 from 1705, where adopting an overall aggressive strategy involved ‘high-betas’ (such as developers) and ‘sector laggards’.
With regards to the overall sector performance, it noted that developers fared surprisingly well during the GE process, including government linked entities such as UEM Land Holdings Bhd (UEM Land).
“Over the GE process, developers under our coverage were not sold down heavily, but instead moved up by an average of 1.5 per cent.
“In fact, developers under our coverage achieved an average year to date gain of 20.9 per cent versus the Kuala Lumpur Property Index’s 14.1 per cent and the FBM KLCI’s 0.3 per cent.
“This was largely buoyed by priced-in expectations of GE, the resiliency of the Iskandar Malaysia story and market liquidity,” Kenanga Research remarked.
It stated that positive news flows should keep developers buoyant with Johor to enjoy the upswing in interest of Iskandar Malaysia properties, Johor-Singapore rail link and Iskandar Waterfront Holding’s (IWH) public listing.
In addition, entry of global brands involving catalytic joint ventures, more government to government agreements, including a seamless immigration centre and increasing foreign direct investment would be among the catalysts to spur the sectors.
With an eye for more high-beta stocks, Kenanga Research further upgraded its developer stock target prices as it would be ‘business as usual’ since there were ‘no major changes in state governments or the Federal Government’.
As such, it lowered overall developers fully diluted revised net asset value discount from 29 per cent to 23 per cent.
“Additionally, we expect overall property demand to pick up in the second half of 2013 as we understand that GE fears could have caused buyers to adopt a ‘wait-and-see’ strategy and developers to delay launches.
“UEM Land is the best news-flow proxy to Iskandar and will benefit from the IWH listing.
“We also highlight that UEM Land has revised its severely understated project gross development values from RM39 billion to RM81 billion,” it stated while revealing a target price of RM3.60 per share for the stock.
With regards to Malaysian REITs, it noted that players with more than RM1 billion market capitalisation had sizeable institutional shareholders, which had collected at historically low costs.
It assumed a slightly higher dividend yield target and as a result maintained most of its target prices except for KLCC Property which was raised by seven per cent to RM7 per unit.