KUALA LUMPUR: RHB Research has upgraded the Malaysia property sector to Overweight and its top picks are IJM Land and Sunway while it still likes Tambun Indah and Matrix Concepts for their thematic angle.
The research house said on Thursday its move to upgrade the sector was underpinned by undemanding sector valuations and catalysts from upcoming infrastructure projects.
The other factors are a stronger 2014 GDP growth outlook and a negative real interest rate environment.
“We also recommend switching to larger-cap property stocks from the small-cap ones. Our top picks are IJM Land and Sunway,” it said.
RHB Research believed that five months after the 2014 Budget was announced, the sector's valuations have largely priced in the negative impact of the government's cooling measures.
The sector is now trading at a 33% discount to RNAV, slightly higher than the pre-election level, and much lower than the recent peak of 13%.
“Since January 2013, the share prices of the small-cap property stocks within the Kuala Lumpur Property Index (KLPRP) have appreciated by 59% versus the larger caps' 26%.
As small caps have rallied sharply over the past one year, we advise that investors take up positions in the larger-cap property stocks, as these developers are typically those with much stronger balance sheets, better landbank portfolios, stronger brand names, solid management and execution track records. They are now trading at attractive valuations,” it pointed out.
RHB Research said the high-speed rail (HSR), MRT Lines 2 & 3, and Kwasa Damansara projects will be the additional re-rating catalysts for the sector, especially within the Klang Valley.
As for Penang, its growth will still be primarily driven by the flow of investments into Batu Kawan.
As for Iskandar Malaysia, although demand in the physical market will take longer to recover, there is market speculation that a new casino may be built in Johor. If this materialises, it could give rise to spillover effects on that region's property sector.
“Our expectation of a demand recovery in 2H14 is also driven by a stronger 2014 GDP growth outlook and the implementation of the goods and services tax (GST) in April 2015.
“We expect demand to surge prior to GST implementation while our in-house estimate of a stronger GDP growth of 5.4% this year (2013: 4.7%) is favourable to the sector,” it said.
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