Property developers are expected to post stronger revenues for the final quarter of 2019 (4Q19) despite the property glut, largely backed by the success of the Home Ownership Campaign (HOC) and a last-minute buying spree.

MIDF Amanah Investment Bank Bhd (MIDF Research) analyst Jessica Low said property developers’ sales during the final three months of last year were helped by last-minute property buying.

“Overall, we think the performance of property developers should be better in 2019 due to the recovery in buying interest from property buyers.

“Nevertheless, we reckon that the recovery is marginal as overall buyer sentiment remains cautious due to the lingering overhang issue in the property sector,” she told The Malaysian Reserve.

However, Low said property developers, who had been focusing on high-end products, faced a challenging 4Q19 as buyers’ sentiment on expensive properties remained weak compared to the mass-market affordable housing.

She said MIDF Research’s top pick of the sector is UOA Development Bhd due to its product offering of urban-based properties within the Klang Valley which continue to receive interest from buyers.

Low said UOA Development’s balance sheet remained healthy at net cash position, making it more attractive than its peers in terms of balance sheet position.

The developer also has an attractive dividend yield of 7%.
Affin Hwang Investment Bank Bhd senior associate director Loong Chee Wei expects property developers’ core earnings per share (EPS) to rebound 6% year-on-year (YoY) in 2019, from a low base after an 18% YoY contraction in 2018.

“Sustained revenue growth and a slow recovery in profit margins should drive core EPS growth of 7% YoY in 2020.

“We believe most property developers’ financial positions improved with lower inventories reducing average net gearing to 0.38 time in 2019 from 0.4 time in 2018,” he said.

He added that the moderate net gearing level will allow most developers to weather the current slowdown.

Affin Hwang Investment Bank puts a ‘Neutral’ call as market conditions remain challenging.

Loong said the current low sector valuations with average 2020 estimates core price-to-earnings ratio of 13 times and price per book of 0.6 time may spark an industry consolidation or major shareholders taking property companies private.

Low said MIDF Research maintains its ‘Neutral’ recommendation for the sector.

“We expect outlook for property developers to be muted in 2020 as we see that buying interest may take a breather in 2020 without incentives from the government.

“We think that the high inventory will remain the key challenge in 2020 which may take a while to be cleared despite the HOC appears to be helping in reducing unsold completed residential units by a marginal 0.4% quarter-on-quarter in 2Q19,” she said.

In 3Q19, 10 out of 15 top property developers recorded growth in earnings against the same quarter last year, including IOI Properties Group Bhd, Eco World International Bhd and SP Setia Bhd.