HLIB Research believes the housing oversupply is easing, which in turn will support a more healthy increase in house prices going forward.
PETALING JAYA: The local property sector is not out of the woods going into 2023, with its long-term dynamics still on the mend, says Hong Leong Investment Bank (HLIB) Research.
In its latest report, the research house believes the housing oversupply issue is easing, which in turn will support a more healthy increase in house prices moving forward.
“However, the biggest stumbling block to the sector recovery remains the labour shortage situation, which impedes the acceleration of site progress and developers from pursuing more aggressive launches,” it added.
HLIB Research noted property developers under its coverage registered commendable third-quarter (3Q22) results, with four coming in above expectations, three within and one below.
When stacked against consensus, there were two above, five within and one below expectations.
“The positive surprise mainly stemmed from stronger-than-expected sales, especially from completed or near-completion projects.
“In terms of sales, four developers are on track or have exceeded their full-year sales target, while four are lagging behind,” the research house pointed out.
For developers with sales trailing targets, HLIB Research noted this was mainly due to a slowdown in new launches for the year.
It added the main reason for the slowdown in launches was due to supply-side issues such as the labour shortage and volatile building material costs.
The research house expects the labour shortage issue to persist in the near term, impacting developers’ progress and billing recognition.
“As such, we recommend developers with higher completed inventories such as IOI Properties Group Bhd
(IOIProp) and property investment segment with recurring income, namely, Sunway Bhd and IOIProp to cushion this impact,” HLIB Research pointed out.
It noted both IOIProp and Sunway’s 3Q22 results came in above its expectation, while their share price appreciated 20.4% and 5.8%, respectively.
According to the National Property Information Centre or Napic preliminary 3Q22 housing data, residential transaction volume saw a healthy pick-up of 11.2% quarter-on-quarter (q-o-q), supported by the economic recovery and healthy job market and rose 56.2% year-on-year (y-o-y), given the low base in the previous year due to lockdown restrictions.
Due to the lack of new launches this year, sales are mainly supported by completed units and ongoing projects, thus, contributing to the easing of unsold units. Malaysia’s House Price Index (HPI) eased 2.1% q-o-q and was flattish at 0.7% y-o-y.
HLIB Research said, “We believe the tepid HPI reflects the previous overhang situation, which peaked in 4Q21. In the near term, we anticipate demand will hold steady supported by the healthy economy and improvement in the job market.”
For developers that have ample ongoing projects and completed inventories, HLIB Research said, “They are likely to remain cautious and continue to adopt a wait-and-see approach in new launches, given that the labour supply remains tight while building material costs have yet to stabilise.”
Hence, the research house has maintained a “neutral” rating on the sector.
HLIB Research favoured Sunway with a target price (TP) of RM2.65 a share. This is due to the group’s anticipated substantial recognition of its Singapore projects in financial year 2023 amounting to an estimated RM150mil-RM160mil net profit contribution, stable recurring income from its property investment, and resilient and growing healthcare segment.
It also likes OSK Holdings Bhd with a TP of RM1.42 a share, as “the stock is currently deep in value, with its market cap trading below its stake in RHB Bank Bhd”.
Furthermore, OSK is one of the few developers that are the least impacted by the labour shortage due to its less labour-intensive industrialised building system construction method. The group launches remain on track with construction progress running ahead of schedule, it added.
HLIB Research continues to favour IOIProp with a TP of RM1.59 a share due to the improving property outlook in China, its strengthening property investment segment and higher level of completed inventories supporting sales.
HLIB Research noted the economy is expected to be more resilient, anchored by firm domestic demand, recovery in tourism activities and large infrastructure projects.
Under the new administration, reining in inflation and managing the cost of living are at the top of the government’s agenda which should augur well for property demand.
Furthermore, building material costs such as steel bar prices have come off the mid-year peak by around 15% to 20% with the exception of cement prices, which are creeping up again with the current levels matching their peak during the middle of the year.
