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PROPERTY & REIT

Sector report After a near-stagnant 2Q20; expect strong rebound in 2H


3 Sep 2020 NEUTRAL
Thong Pak Leng (Maintained)
thong-pak-leng@ambankgroup.com
03-2036 2025 Rationale for report: Sector update

Investment Highlights

 2QCY20 results largely below expectations. The results of the companies under our coverage are largely below
expectations. Out of the 10 companies, 7 came in below expectations while 3 were in line (Exhibit 2).
o For property developers, IOI Properties Group (IOIPG), MRCB and UEM Sunrise (UEMS) were within
expectations while the results of Eco World Development Group (EcoWorld), Crest Builder, Mah Sing,
SimeProp and S P Setia were lower than expected.
o Despite making losses in other divisions, IOIPG’s property development segment recorded an FY20 EBIT of
RM813.5mil (+22.2% YoY) mainly due the operating profit contribution from its China operation arising from
the sale of the recently launched high-rise condominium in IOI Palm City, Xiamen. That brought the group’s
total core net profit to RM603.1mil for FY6/20.
o All companies posted lower earnings or losses 2QCY20 (Exhibit 2) mainly due to slower recognition as a result
of the movement control order (MCO) related to the Covid-19 pandemic. Meanwhile, Mah Sing, S P Setia, and
UEM Sunrise have many projects still in their early stages, hence revenue recognition in 1H was lower
compared with the previous year’s.

 New sales YoY generally lower. Developers generally reported lower new sales YoY, by about 31% (Exhibit 2),
due to the lacklustre market and the impact of the MCO. Hence, we do not expect to see surprises in earnings over
the next 12–18 months. Developers are more aggressive in clearing unsold units by offering discounts with the
inventory level on a declining trend. We believe that this is a positive move to realise cash flow.

 Consumer sentiment still weak. Most developers remain cautious, and are still assessing the economic situation,
before deciding to continue or defer future launches. We believe that consumer sentiment shall remain weak for the
time being with spending mainly focused on necessities while big-ticket items such as properties take a back seat.

 Expect stronger performance in 2H. 1H20 earnings were mainly weighed down by the MCO and the Covid-19
pandemic. Nevertheless, developers under our coverage have reasonable amount of unbilled sales (Exhibit 2). Also,
with the resumption of business activities and construction work, we expect to see stronger recognitions in 2H20.

 REITs under pressure. Retail REIT managers are adopting a proactive stance in supporting their tenants through
this difficult time. Pavilion REIT (PREIT) registered lower earnings of RM49.1mil (-63.4%) mainly due rent rebates
from April 2020 to June 2020 given to tenants of non-essential services and supplies; and lower income from car
park and advertisements. YTL Hospitality REIT’s (YTL REIT) lower earnings were mainly due to weaker revenue
from its Australian properties as a result of travel restrictions which have impacted the tourism and hospitality
business in the country. YTL REIT has also proposed rental variation to tenants which will result in the deferment of
distributions to unit holders for a longer period. However, unit holders will see a spike in distribution in FY23 when
the repayment begins.

 Maintain NEUTRAL. We retain our NEUTRAL view on the sector as we do not anticipate earnings surprises in the
short to medium term. We have BUY recommendations on (1) IOIPG (FV: RM1.52) which is banking on the strong
contribution from its property development projects; and (2) Mah Sing (FV: RM1.01), underpinned by the strong
take-up rates of its recent launches. We maintain BUY on PREIT (FV: RM1.91) and YTL REIT (FV: RM1.26).
We may upgrade our stance for the property sector to OVERWEIGHT if: (1) banks are to ease lending policies on
properties; or (2) consumer sentiment is to improve significantly.
Property & REIT Sector 3 Sep 2020
EXHIBIT 1: VALUATION MATRIX
Companies Recommendation Price FV Upside Mkt Cap FYE EPS (sen) EPS growth (%) P/E (x) P/B* ROE* NDPS* Div Yield*
(RM) (RM) (%) (RMmil) FY20F FY21F FY20F FY21F FY20F FY21F (x) (%) (sen) (%)
Crest Builder BUY 0.74 1.76 137.7% 121.4 Dec 5.9 12.6 -62.0% 114.3% 12.6 5.9 0.2 1.9% 3.5 4.7%
EcoWorld HOLD 0.42 0.41 -1.4% 1,221.9 Nov 4.5 5.4 -34.7% 20.2% 9.2 7.6 0.3 2.9% 0.0 0.0%
IOIPG BUY 0.91 1.52 68.0% 5,506.2 Jun 10.1 10.6 22.5% 4.9% 8.9 8.5 0.3 2.9% 5.0 5.5%
M ah Sing BUY 0.78 1.01 29.5% 2,428.0 Dec 3.2 5.1 -41.1% 59.2% 24.1 15.2 0.4 3.4% 3.4 4.3%
M RCB HOLD 0.51 0.47 -6.9% 2,219.5 Dec 0.9 1.3 75.8% 42.0% 53.2 37.4 0.5 0.9% 0.5 1.0%
SimeProp HOLD 0.66 0.60 -8.5% 4,488.6 Dec 3.7 4.9 -20.3% 34.8% 18.0 13.4 0.5 2.5% 0.7 1.1%
SP Setia HOLD 0.80 0.70 -12.7% 3,245.4 Dec 3.3 7.1 -61.1% 117.1% 24.4 11.2 0.2 0.9% 1.3 1.6%
Titijaya HOLD 0.470 0.28 -40.4% 631.9 Jun 0.7 1.0 -74.7% 52.1% 71.4 47.0 0.5 0.7% 0.4 0.9%
UEM Sunrise HOLD 0.41 0.45 11.1% 1,837.7 Dec 1.6 2.6 -73.4% 61.8% 24.8 15.3 0.3 1.0% 1.0 2.5%
PREIT BUY 1.56 1.91 22.4% 4,740.9 Dec 5.2 8.6 -39.3% 66.4% 30.2 18.2 1.2 3.9% 5.2 3.3%
YTL REIT BUY 0.78 1.26 61.5% 1,329.4 Jun 7.5 3.7 -5.3% -50.6% 10.5 21.2 0.5 5.0% 6.7 8.6%
W eighted Average -18.8% 44.4% 23.3 16.0 0.5
As at 2/9/2020
Source: Company, AmInvestment Bank Bhd

EXHIBIT 2: QUARTERLY REPORT CARD


2QCY19 core 2QCY20 core 2019 YTD 2020 YTD CY20
Unbilled sales 2019 YTD 2020 YTD
Companies net profit net profit YoY chg (%) Core net Core net YoY chg (%) Results YoY chg (%) earnings
(RM mil) new sales (%) new sales (%)
(RMm) (RMm) profit (RMm) profit (RMm) revision
Crest Builder - 4.1 (7.7) -285.6% 14.2 (8.1) -157.2% Below n.a. n.a. n.a. ↓
EcoWorld 4,600.0 41.2 21.4 -48.0% 71.5 54.9 -23.2% Below 1,000.0 975.0 -2.5% ↓
IOIPG 607.0 72.7 176.1 142.2% 616.8 603.1 -2.2% Inline 1,930.0 1,839.0 -4.7% ↔
Mah Sing 1,640.0 23.2 (26.6) -214.3% 59.9 14.2 -76.4% Below 761.4 418.6 -45.0% ↓
MRCB 1,300.0 11.0 (16.3) -248.1% 15.0 (1.5) -109.8% Inline 244.0 86.0 -64.8% ↔
Sime Prop 1,538.5 178.4 33.6 -81.2% 239.0 53.1 -77.8% Below 1,400.0 712.5 -49.1% ↓
SP Setia 9,680.0 81.9 5.8 -92.9% 166.9 32.8 -80.3% Below 1,980.0 875.0 -55.8% ↓
UEM Sunrise 1,700.0 82.5 (69.4) -184.1% 107.8 (75.8) -170.4% Inline 532.0 500.0 -6.0% ↔
Total 21,065.5 490.9 124.8 -74.6% 1,277.0 680.8 -46.7% 7,847.4 5,406.1 -31.1%
PREIT n.a. 61.8 12.2 -80.3% 134.0 49.1 -63.4% Inline n.a. n.a. n.a. ↓
YTL REIT n.a. 35.8 27.0 -24.4% 134.2 127.1 -5.3% Below n.a. n.a. n.a. ↓
Total 0.0 97.6 39.2 -59.8% 268.1 176.2 -34.3% n.a. n.a. n.a.

Source: Company, AmInvestment Bank Bhd

AmInvestment Bank Bhd 2


Property & REIT Sector 3 Sep 2020

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