Current valuations of the property sector are beginning to normalise to the level before the 2013 General Election while the price-to-book values (P/BV) of property developers have narrowed.
KUCHING: Analysts foresees the value of certain property developers’ stocks to emerge given their attractive valuations after share prices were sold down recently.
RHB Research Institute Sdn Bhd (RHB Research) in a report yesterday said current valuations of the property sector are beginning to normalise to the level before the 2013 General Election while the price-to-book values (P/BV) of property developers have narrowed.
Using the share price of UEM Sunrise Bhd (UEM Sunrise) as a benchmark for floor valuations, the research firm observed that the share price of the property developer has rebound strongly from an all-time low of 0.55 times P/BV.
Thus, RHB Research believed the share price of IOI Properties Group Bhd (IOI Properties) could also stage a rebound given its historical low valuations of 0.5 to 0.55 times P/BV.
IOI Properties has a strong pool of assets despite earnings outlook for its property development division possibly not looking exciting.
IOI Properties has 14,000 acres (5,666 hectares) of landbank as well as RM3.4 billion worth of recurring income generating property for instance IOI City Mall, Putrajaya, IOI Mall, Puchong and several hotels and office blocks that support 20 per cent of the company’s earnings before interest and tax (EBIT).
The research firm opined that the percentage is likely to increase as more assets are built.
RHB Research estimated the current valuation of IOI Properties’ shares price of 59 per cent discount to its revised net asset value could be too low for a big capitalisation property stock.
Additionally, RHB Research also favoured property developers which have attractive implied land value.
Tambun Indah Land Bhd’s (Tambun Indah) implied land valuation at just RM25 per square feet (psf) look attractive as the market value for land parcels in Mainland Penang has appreciated to RM35 to RM45 psf.
It observed that Tambun Indah’s landbank is just 15 minutes away from the fast-growing Batu Kawan area while strategic landbank is scare in Mainland Penang.
On another note, RHB Research expects the unsold units of property to increase given property developers’ aggressive launches in the past as well as slowing demand for property.
With higher unsold properties level, the research firm believed property developers are likely to remain cautious with the launching of new projects as the focus on the near term should be to reduce the unsold properties and lower their holding costs.
Nonetheless, RHB Research observed that value for certain property developers have emerged such as IOI Properties and Tambun Indah.
The research firm also favoured Paramount Corporation Bhd (Paramount) for the company’s exposure to the education division through its education arm KDU Education Group which could provide resilient earnings to the company.
Furthermore, RHB Research also expects upcoming newsflow on construction contracts to spur Malaysian Resources Corporation Bhd’s prospects.
As a whole, RHB Research believed the current attractive valuations represented a good opportunity for investors to accumulate value stocks.