May 25, 2010

Malaysia Property Sector Outlook by ECMLibra

Maintain OVERWEIGHT. Spotlight on 1MDB

•  Lower amid market consolidation

The KL Property Index lost 5.1% amid weakness in global and domestic equity markets as investors confidence was spooked by concern over the European sovereign debt crisis. On major shareholding changes, Employees Provident Fund (EPF) acquired 2.5m shares in SP Setia but trimmed 0.5m shares in Sunrise last week. Meanwhile, Dato’ Dr Yu Kuan Chon acquired 1.2m in YNH Property.

•  Notable property news
There were further new flows on 1Malaysia Development Bhd (1MDB) last week as it will reportedly be the master planner for most of the federal government’s land redevelopment programme in the Klang Valley. The entity was reported to be partnering the Qatar Investment Authority for a US$5bn (approximately RM16bn) investment in real estates and energy sector. Following last week’s revelation that it will played a key role in the redevelopment of the RMAF air base in Sungai Besi, 1MDB last week was also reported by the media to be partnering Mubadala Development Co, the property arm of the Abu Dhabi government, to invest US$2bn (RM6.5bn) to develop the Kuala Lumpur International Financial District, a mixed development project on 34.4 ha along Jalan Tun Razak. The Malaysian government has handed over the site, popularly referred to as Dataran Perdana, to 1MDB. A joint venture company will be set up for a mixed development to include finance, banking, residences and retail. 

•  Maintain OVERWEIGHT

We remain bullish on the residential sub-segment of the property sector, as we believe investors’ concern on the impact of interest rate hike has been overblown. We hold the view that interest rate hike will be gradual and minimal. Further to that, property sales is driven more by sentiment, which remains buoyant, rather than interest rate alone. We like the residential sub-segment on expectation of higher sales in CY2010 amid still low interest rate and improving sentiments. We prefer laggard mid-cap property stocks such as Sunway City and Sunrise. Among non-rated property stocks, we like Mah Sing.

by ECMLibra Vickers