PP 7767/09/2010(025354)

1 September 2010

Malaysia
RHB Research
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Se ctor News Up dat e 1 September 2010

MARKET DATELINE

Property Recom : Overweight

(Maintained)
IFRIC 15 deferred to 2012

Table 1 : Property Sector Valuations

EPS EPS growth PER P/NTA P/CF GDY
FYE Price (sen) (%) (x) (x) (x) (%) Rec
(RM/s) FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
SP Setia Oct 4.33 18.6 21.7 15.7 16.7 23.3 20.0 2.00 18.8 2.1 MP
IJM Land Mar 2.26 12.1 17.3 22.7 43.2 18.7 13.1 1.73 5.9 1.0 OP
Suncity Dec 3.88 34.8 38.7 9.0 11.1 11.2 10.0 0.78 3.1 9.3 OP
Mah Sing Dec 1.82 14.0 17.2 23.6 22.8 13.0 10.6 1.65 -55.9 3.1 OP
Sunrise Jun 1.99 29.9 33.2 10.6 11.1 6.7 6.0 0.81 9.6 2.1 OP
YNH Dec 1.69 16.1 20.8 25.2 28.8 10.5 8.1 0.92 16.8 2.4 MP
Paramount Dec 4.41 58.3 63.8 10.3 9.4 7.6 6.9 0.97 7.8 6.6 OP
Glomac Apr 1.35 13.9 15.4 22.1 10.4 9.7 8.8 0.71 8.4 6.3 OP
Hunza Jun 1.35 27.6 20.9 3.4 -24.2 4.9 6.5 0.57 4.7 4.1 TB
Sector Avg 11.7 10.0 1.1 2.1 4.1
* price at 27 Aug 10

♦ IFRIC 15 to be implemented only in Jan 2012. From our recent checks with a few
developers, the effective implementation date for the new accounting standard – IFRIC 15 Table 2. Fair values
(RM/share)
(International Financial Reporting Interpretations Committee) on real estate development Company Price FV
has been deferred to Jan 2012, from July 2010 previously. According to MASB’s website, SP Setia 4.33 4.66
IJM Land 2.26 3.00
the deferment was to allow stakeholders to continue deliberating its implementation as it Suncity 3.88 5.45
noted that the sell-and-build business model used by developers in Asia, where both the Mah Sing 1.82 2.06
seller and buyer share certain elements of risk over the real estate-in-progress, differs Sunrise 1.99 2.88
YNH 1.69 1.86
from real estate business models employed elsewhere. As such, developers’ earnings will Paramount 4.41 5.80
continue to be recognised based on percentage of completion, i.e. progressive billings Glomac 1.35 1.56
Hunza 1.35 1.58
method, rather than completion method under the IFRIC 15.

♦ Neutral on this news. The deferment gives a relief to investors as well as developers
who are concern with lumpy earnings recognition, which may potentially affect investor
sentiment on property stocks. In our view, changes in accounting standards will not have
an impact on company fundamentals, and the sector will continue to be driven by
macroeconomic growth as well as Government’s policy to cool the “overheating” property
sector.

♦ Our valuations are RNAV-based. Currently, our valuations methodology for all the
property stocks (except for REITs) under our coverage is based on RNAV, which is valid
under both the current accounting stardard and IFRIC 15.

♦ Risks. Key risks include: 1) materialisation of higher downpayment ratio on property

purchases; 2) substantial increase in interest rate - 50 bps or 75 bps at once; and 3)
tightening in commercial banks’ lending policy – lower discount from BLR.

♦ Maintain Overweight. We are cautiously optimistic at this juncture, as Bank Negara

Malaysia may impose a cap on loan-to-value ratio for home mortgage. Pending further
details, we maintain our Overweight rating on the sector. Our top picks remain unchanged:
IJM Land (OP, FV = RM3.00), Suncity (OP, FV = RM5.45) and Mah Sing (OP, FV = Joshua Ng
(603) 92802237
RM2.06).
joshuang@rhb.com.my

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 1 September 2010

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