Wednesday, October 20

Trading opportunities seen in beaten down property stocks post-GE14

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KUCHING: The property sector outlook remains challenging over the medium term and demand for properties may take sometime to recover in a more significant way, the research arm of Maybank Investment Bank Bhd (Maybank IB Research) observed, while also seeing trading opportunities in beaten down stocks post the 14th General Election (GE14).

According to Maybank IB Research, properties going’under the hammer’are expected to continue to rise in the coming quarters especially for high-end residential and residential under commercial titles such as SOVO, SOHO and SOFO.

“Apart from sub-sales, auction properties pose another form of competition to the developers,” the research arm said.

“Elsewhere, margin compression is expected to continue as developers offer various marketing schemes to clear their inventories.”

Maybank IB Research highlighted that the slowdown in property demand and ample supply of properties available in the market have prompted more developers and property owners to make their properties more attractive to buyers and tenants by offering fully furnished and rent-to-own (RTO) schemes.

“The RTO scheme will require healthy cash pile fordevelopers to implement.

“Also, it will likely put a lot of financial stress on their cash flows.”

The research arm expected margin erosion to continue as developers may not be able to pass on these additional costs to buyers amid a weak property market.

However, Maybank IB Research noted that downside risks are waning after the selldown in property stocks in the first quarter of 2018 (1Q18).

The sector is now trading at a 54 per cent discount to the research arm’s revalued net asset value (RNAV) estimates, versus 45 to 50 per cent previously.

“We see trading opportunities in beaten down stocks post GE14 assuming a status-quo outcome for GE14 but it could be short-lived since sector fundamentals remain weak.”

Overall, Maybank IB Research remained ‘neutral’ on the sector from a top-down perspective.