6 July 2017 Property Developers Time To Deliver By Sarah Lim l sarahlim@kenanga.com.my NEUTRAL Downgrade to NEUTRAL from OVERWEIGHT as the sector has done well YTD with riskreward turning downside bias as investors train their attention to headline sales delivery. The KLPRP Index has outperformed the FBMKLCI on a YTD basis. Recall that our tactical upgrade to OVERWEIGHT last quarter was premised on sentiment superseding fundamentals due to reduced earnings risks and high beta plays on improving broad market performance. Our previous Top Picks (IOIPG, SUNSURIA) have done well since our recommendations. However, the previous reporting season was unexciting while 1QCY17 headline sales were mostly broadly within with a weaker bias as timing of launches are largely skewed towards latter quarters. Since the sector s share prices have done well YTD, we think the risk-reward ratio has become less appealing as investors will be training their attention to the upcoming 1HCY17 reporting season. While sector indicators do lend strength to the argument that a bottom has been found, the question of the momentum of the sector growth remains elusive while we think there is some threat to developer s market share arising from government housing schemes. Valuations are at crossroads with our universe s average RNAV discounts trading at historical average levels. We strongly believe that the sector s RNAV discount levels can only re-rate beyond average historical levels if there are more positive headline sales surprises or when positive property policies are introduced (fiscal, banking sector related). Budget- 2018 could offer the sector some positives, although we are taking a more muted view at this juncture due to the pending General Election. Other catalysts that could excite the market are potential M&As (e.g. SIME s spin-off of their property arm, ECOWLD acquisitions). We have mostly MARKET PERFORM calls and our Top Pick is A&M (OP; TP: RM3.00) for a deep value play. For now, we recommend that investors remain nimble on the sector for stocks, which have done well YTD; otherwise, investors may have to take a longer-term view on value plays, bearing in mind that near-term volatility may ensue over the traditionally weak 3rd quarter for the broad market. KLPRP outperforms FBMKLCI. The KLPRP Index (+13.8% YTD) has outperformed the FBMKLCI s (+8.4% YTD). Big-cap (>RM3b market cap) players average YTD returns were at 13.7% while small-mid cap player s average did better at 16.7%. Recall that our tactical upgrade to OW last quarter was premised on sentiment superseding fundamentals as the sector has yet to see a physical overdrive in sales. However, back then, we felt that developers risks have been mainly priced in while being a laggard over the last two years. Our studies revealed that: (i) if FBMKLCI is positive in a particular year, the KLPRP beta improves above 1.0, (ii) KLPRP tends to outperform the FBMKLCI every 1-2 years regardless of the physical market, i.e. the KLPRP could do better than the broad market over 2017-18 (refer to Property SU, 21/3/2017). We note that 1QCY17 reporting season saw earnings being relatively less exciting and with minimal earnings revisions vs. the last quarter. Meanwhile, 1QCY17 headline sales appear to mostly broadly within (mainly on a weaker bias) due to timing of launches, which are mainly skewed towards 2Q-3QCY17, while we also downgraded more calls to MARKET PERFORM. (Refer to APPENDIX for 1QCY17 reporting details and detailed YTD return charts). Our Top Picks has done well. Last quarter, we selected the following Top Picks; (i) IOIPG as a beta play being a big-cap laggard with strong earnings momentum, (ii) SUNSURIA as our alpha play on its sales and earnings normalization resulting in the highest growth amongst our coverage with potential maiden dividends. IOIPG and SUNSURIA had registered return of 10.9% and 6.5%, respectively, since our Top Pick recommendations. Note: Our report is based on last price cut-off date of 23/6/17. PP7004/02/2013(031762) Page 1 of 16
YTD Performance Core Coverage (CY17 YTD Returns) -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Source: Bloomberg, Kenanga Research HUA YANG BHD MALAYSIAN RESOURCES CORP BHD UOA DEVELOPMENT BHD MAH SING GROUP BHD KLCI SP SETIA BHD IOI PROPERTIES GROUP BHD MATRIX CONCEPTS HOLDINGS BHD MAGNA PRIMA BHD CRESCENDO CORPORATION BHD Big cap (>RM3b) KLPRP Small-mid cap (<RM3b) UEM SUNRISE BHD Core Coverage Average ECO WORLD DEVELOPMENT GROUP KSL HOLDINGS BHD SUNWAY BHD SUNSURIA BHD A & M REALTY BHD Time to deliver. Since the sector s share price performance has done well YTD, we think the risk-reward ratio has become less appealing as investors will be training their attention to the upcoming 1HCY17 reporting season. Recall that over CY15-16, about 40%-50% of developers trimmed their sales target during 3QCY17. Assuring sector indicators. Positively, residential loans applied and approved data continue to show improvements (nonresidential loans applied is improving but approvals remains on a negative trend) while other banking indicators for the sector remains relatively stable. 1QCY17 Malaysia Property Transacted Values was up by 8% YoY while Malaysia Residential Transacted Values was up by only 1% YoY, which we view as an improvement from the declining trends observed over FY15-16. Meanwhile, our universe average unbilled sales visibility remains steady at 1.1 years while average 1-year forward net gearing is healthy at 0.22x (refer to Appendix for details). Changes in risk-reward ratio. These factors do lend strength to the argument that the sector has bottomed, although the question of the momentum of sector growth remains elusive; hence, we still maintain our Malaysia Residential Transaction projection (refer to Appendix). We still believe there will be less headlines sales risk compared to last year but we reckon there is still risk of some developers tweaking their targets. Thus, meeting sales targets may result in no major share price reactions while disappointments may result in sell-downs. Competition from government housing schemes. We are also concerned that government housing schemes (e.g. PR1MA, Rumah Selangor-ku, Rumah WIP, etc), which are not significant drivers for our core coverage, may compete for market share in the mass market space. Notably, many of these government housings are priced between RM300-400k/unit in Klang Valley, while we note that many developers under our coverage are mostly doing above RM400k/unit in Klang Valley. Ytd-YoY Changes in Annual Loans Applied & Approved (Residential & Non Residential) KLPRP Index 1600 1400 1200 1000 800 600 400 200 0 ANNUAL CUMM: Loans Applied: BS: PP: Purchase of Residential Property - YoY Change ANNUAL CUMM: Loans Approved: BS: PP: Purchase of Residential Property - YoY Chg KLPRP Index 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% -60.0% YoY Change in Cumm. Loans Approved/Applied KLPRP Index 1600 1400 1200 1000 800 600 400 200 0 ANNUAL CUMM: Loans Applied: BS: PP: Purchase of Non Residential Property - YoY Change ANNUAL CUMM: Loans Approved: BS: PP: Purchase of Non Residential Property - YoY Chg KLPRP Index 200.0% 150.0% 100.0% 50.0% 0.0% -50.0% -100.0% YoY Change in Cumm. Loans Approved/Applied Source: BNM, CEIC, Kenanga Research Refer to Appendix for other Property-Banking Indicators PP7004/02/2013(031762) Page 2 of 16
1QCY17 Malaysia Residential & Property Transacted Values & Units 25,000 80,000 60,000 140,000 70,000 50,000 120,000 20,000 60,000 100,000 40,000 15,000 50,000 80,000 RM'm 40,000 Units RM'm 30,000 Units 10,000 30,000 60,000 20,000 20,000 40,000 5,000 10,000 10,000 20,000 0 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 0 0 0 Msia Residential Transaction Values (RM'm) Source: CEIC, JPPH, Kenanga Research Msia: TOTAL Residential Transactions (Units) Malaysia Property Transaction Values (RM'm) Malaysia Property Transaction Units Kenanga Sales and Earnings Estimates Company Kenanga Sales Estimates (RM'b) Kenanga Earnings Estimates (RM'b) FY17/18E FY18/19E FY17/18E FY18/19E CRESNDO* 0.22 0.23 0.03 0.03 ECOWLD 4.80 4.80 0.11 0.25 HUAYANG 0.33 0.45 0.06 0.07 IOIPG* 2.61 2.61 0.80 0.80 MAHSING 1.80 1.80 0.34 0.33 MATRIX 1.00 1.00 0.22 0.24 MRCB* 1.10 1.10 0.08 0.10 SPSETIA* 4.00 4.52 0.76 0.65 SUNWAY 1.13 0.92 0.52 0.54 UEMS* 1.22 1.23 0.23 0.16 UOADEV* 1.42 1.42 0.38 0.39 SUNSURIA 0.89 1.10 0.10 0.16 A&M 0.11 0.14 0.27 0.35 MAGNA 0.16 0.18 0.01 0.01 Total 20.79 21.51 3.91 4.08 Total (excl. ECOWLD, SUNSURIA, IOIPG) 12.49 13.00 2.90 2.87 * Core Earnings / Note: (i) KSL has been excluded from this data due to lack of sales data by management. (ii) ECOWLD and SUNSURIA earnings growth may distort overall figures due to time taken to normalize earnings. For SUNSURIA, their sales levels have also yet to normalize. (iii) For UEMS, only property sales are used as we exclude land sales. / Kenanga Sales and Earnings Estimates YoY Growth YoY Change Kenanga Sales Estimates Kenanga Earnings Estimates FY17/18E FY18/19E FY17/18E FY18/19E CRESNDO* -6% 6% 9% 3% ECOWLD 20% 0% -12% 119% HUAYANG 39% 36% 2% 16% IOIPG* 19% 0% 23% 0% MAHSING 1% 0% -2% -4% MATRIX 0% 0% 19% 6% MRCB* -8% 0% -46% 28% SPSETIA* 5% 13% -6% -14% SUNWAY -6% -18% -4% 4% UEMS* -11% 1% 59% -31% UOADEV* 0% 0% 1% 3% SUNSURIA 95% 24% 167% 60% A&M 195% 29% 33% 30% MAGNA 44% 18% -18% 69% Universe Growth 9% 3% 7% 4% Universe Growth (excl. ECOWLD, SUNSURIA, IOIPG) 1% 4% 2% -1% * Core Earnings / Note: (i) KSL has been excluded from this data due to lack of sales data by management. (ii) ECOWLD and SUNSURIA earnings growth may distort overall figures due to time taken to normalize earnings. For SUNSURIA, their sales levels have also yet to normalize. (iii) For UEMS, only property sales are used as we exclude land sales. / PP7004/02/2013(031762) Page 3 of 16
Valuations are at crossroads. Currently, our universe average RNAV discount is trading at 52.5% which is in-line with its historical average levels of 52.7% with big-caps trading slightly above their historical average levels while small-mid caps are slightly below. In terms of Fwd. PER and Fwd. PBV, our universe average has seen QoQ expansion in valuations as share prices have re-rated while earnings stayed mainly unchanged (refer to Appendix for details). We strongly believe that the sector s RNAV discount levels can only re-rate beyond average historical levels if there are more positive headline sales surprises or when positive property policies are introduced (fiscal, banking sector related). Developers FD RNAV Discounts Historical HIGH Discount to FD RNAV/SOP Historical Average Discount to FD RNAV/SOP Historical LOW Discount/ Premium to FD RNAV/SOP Discount @ Last Price 23/6/17 UEMS -80.2% -62.0% -23.4% -71.6% IOIPG** -65.5% -58.6% -50.9% -59.7% SPSETIA -56.0% -40.5% -15.2% -56.0% SUNWAY** -49.2% -35.9% -15.0% -27.6% MAHSING** -68.8% -53.6% -40.4% -45.0% UOADEV -60.4% -43.7% -32.5% -38.9% ECOWLD* ** -59.3% -53.5% -42.6% -49.1% MRCB** -57.9% -32.1% -2.9% -23.2% Average (>RM3b mkt cap) -62.2% -47.5% -27.9% -46.4% MATRIX -69.3% -38.8% -23.1% -23.9% CRESNDO -77.1% -62.0% -39.0% -73.3% HUAYANG -65.8% -44.1% -22.9% -65.8% KSL -85.7% -80.0% -64.7% -82.5% SUNSURIA* ** -49.2% -45.4% -42.1% -44.0% A&M -85.9% -82.6% -75.6% -77.9% MAGNA -67.9% -57.4% -44.9% -49.7% Average (<RM3b mkt -71.5% -58.6% -44.6% -59.6% cap) Overall Sector Average -66.5% -52.7% -35.7% -52.5% * May not be representative due to limited data ** (i) Implied SOP discount i.e. it does not reflect of Property RNAV discount. QoQ Change in Fwd PER & PBV levels Fwd PER at last price at 23 June 17 Fwd PER at last price at 10 Mac 17 Fwd PBV at last price at 23 June 17 Fwd PBT at last price at 10 Mac 17 UEMS 23.7 23.1 0.86 0.85 IOIPG 14.7 11.3 0.63 0.55 SPSETIA 12.8 12.7 1.36 0.98 SUNWAY 15.3 12.2 1.03 0.72 MAHSING 10.9 10.0 1.07 0.97 UOADEV 10.8 11.0 1.04 1.06 ECOWLD 42.3 17.9 1.26 1.11 MATRIX 6.9 6.0 1.41 1.29 CRESNDO 11.4 10.9 0.50 0.41 HUAYANG 6.0 6.6 0.56 0.62 MRCB 39.5 47.5 0.97 1.66 KSL 7.4 7.7 0.47 0.49 SUNSURIA 11.5 11.2 1.43 1.40 A&M 21.2 19.0 0.88 0.79 MAGNA 75.7 82.3 1.21 1.32 Average* 19.3 17.3 0.98 0.90 * Stocks excluded from the average computation are MRCB due to its corporate restructuring activities, previous loss making years and/or volatility in earnings. PP7004/02/2013(031762) Page 4 of 16
The sector needs strong catalysts. Investors will train their attention to the upcoming Budget-2018 announcement in Oct-2017 and running-up to that, we will explore the potential measures that could be announced (e.g. lower RPGT and stamp duties, banking measures). For now, we expect Budget-2018 to be muted as it is expected to be very rakyat-friendly given that the General Election could take place within the next 12 months. There could be more M&A plays with SIME s spin-off of its property arm by year-end while some are speculating other potential M&A activities (e.g. ECOWLD). However, judging by the performance of SETIA post its I&P funding announcement, we expect investors to sell on news as these M&As are mainly RNAV plays requiring long earnings gestation period. RECOMMENDATIONS Downgrade to NEUTRAL from OVERWEIGHT as the sector has done well YTD with risk-reward turning downside bias as investors train their attention to headline sales delivery. We may review our sector call with an upward bias if: (i) 2QCY17 reporting season yields surprises in terms of headline sales, (ii) there is sharp share price retracements on the back of stable fundamentals, and (iii) positive policies from Budget-2018. For now, we recommend that investors remain nimble on the sector for stocks which has done well YTD; otherwise, investors may have to take a longer-term view on value plays, bearing in mind that near-term volatility may ensue over the traditionally weak 3rd quarter for the broad market. Mostly MARKET PERFORM calls. We have kept most of our recommendations unchanged save for: (i) UEMS which we downgraded to MARKET PERFORM with a lower TP due to competition arising from emergence of more big-cap alternatives, besides IOIPG, which have higher Klang Valley-based projects (e.g. SETIA-I&P, SIME Properties) vs. UEMS high Johor exposure, (ii) HUAYANG which we trimmed our TP further to reflect heightened earnings risk arising from competing government housing schemes as the group is selling products in similar price range. Out of the 15 developers under our coverage, 67% are MARKET PERFORM calls while the remaining are OUTPERFORM calls vs. last quarter when 61% of our universe were OUTPERFORM recommendations. Our TOP PICK is A&M (OP; TP: RM3.00) for 3QCY17 as a long-term deep value play and strong growth from low earnings base. We like A&M for several reasons; (i) low land cost of <10% of GDV mostly in Selangor, (ii) beneficiary of Pulau Carey port development play which could materialize by year-end, (iii) strong balance sheet with net cash position, and (iv) FY17-18E earnings growth of 33-30% which is higher than our universe of developers average growth of 11%-19%. However, we highlight that we expect weak 1H17 results performance as bulk of its planned launches are geared towards 2H17. Our Target Price of RM3.00 implies a 57% discount to its SoP per share of RM7.00. Changes in CALLs/TPs Developers New Call New TP (RM) Valuation (Discount to PROPERTY RNAV) Valuation (Discount to SoP) New FD SoP RNAV (RM) Quantum of TP revision Call Action UEMS MP 1.33-69% -69% 4.30-8% Downgrade IOIPG OP 2.30-57% -57% 5.31 0% Maintain SPSETIA** OP 4.08-46% -46% 7.59 0% Maintain SUNWAY MP 1.66-55% -29% 2.32 0% Maintain ECOWLD MP 1.72-51% -46% 3.18 0% Maintain MAHSING OP 1.67-48% -40% 2.80 0% Maintain UOADEV MP 2.63-36% -36% 4.11 0% Maintain MRCB MP 1.32-50% -15% 1.55 0% Maintain KSL MP 1.30-82% -82% 7.07 0% Maintain MATRIX MP 2.65-25% -25% 3.51 0% Maintain CRESNDO MP 1.70-73% -73% 6.32 0% Maintain HUAYANG MP 1.14-63% -63% 3.10-8% Maintain SUNSURIA OP 1.61-40% -36% 2.52 0% Maintain A&M OP 3.00-57% -57% 7.00 0% Maintain MAGNA MP 1.60-35% -46% 2.94 0% Maintain Weighted Average -52% -46% -1% Simple Average -52% -48% -1% ** Ex-Rights Basis Note: For further details and explanation, please refer to APPENDIX PP7004/02/2013(031762) Page 5 of 16
APPENDIX 1QCY17 Performance Broadly within. Out of 14 developers under our coverage, (i) 64% was in-line to broadly in-line on expectations of strong earnings momentum in 2HCY17, (ii) 29% disappointed (SUNWAY, MATRIX, HUAYANG, MRCB), (iii) while 7% (KSL) positively surprised. It was relatively less exciting than last quarter which saw 46% of our universe exceeding expectations and 29% disappointing. Headline sales were mostly deemed as broadly within due to timing of launches which are mainly skewed towards 2Q-3QCY17. However, only HUAYANG (full-year reporting) miss targets due to lack of launches, while MRCB exceeded our expectations but was in-line with management s target. Again, this is mild compared to last quarter whereby 38% exceeded targets and 8% missed. There were minimal earnings adjustments this time around, save for upward revisions for 14% of our stock universe (MRCB, KSL). No observable trends in YoY and QoQ earnings movements. This is less volatile than last quarter when 31% saw upward revisions and earnings cut for 38%. More calls downgraded. In terms of revision in calls, we downgraded 21% of our stock universe (SUNWAY, MATRIX, HUAYANG) to MARKET PERFORM while upgrading 7% to MARKET PERFORM (KSL). TPs were also largely kept save for 14% which saw higher TPs (UOADEV, SUNWAY) while 7% saw TP reduction (HUAYANG). This is a deterioration from last quarter where most calls were unchanged while 14% saw call upgrades. In terms of TP revisions, it is quite like the last quarter. Note that subsequently, we had downgraded ECOWLD to MARKET PERFORM during the recent 2Q17 results on sharp share price run-up. YTD Performance of Small-mid Cap Developers (<RM3b mkt cap) Share Price YTD Gain CY17 (<RM3b market cap) -60.0% -40.0% -20.0% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% Source: Bloomberg, Kenanga Research NAIM HOLDINGS BERHAD IBRACO BHD BERTAM ALLIANCE BHD MKH BHD ORIENTAL INTEREST BHD MEDA INC BHD MULTI-USAGE HOLDINGS BHD LAND & GENERAL BHD Y&G CORP BHD TITIJAYA LAND BHD MCT BHD JKG LAND BHD IVORY PROPERTIES GROUP BHD HUA YANG BHD EWEIN BHD GLOMAC BHD SHL CONSOLIDATED BHD BINA DARULAMAN BHD DAMANSARA REALTY BHD MK LAND HOLDINGS BHD AMCORP PROPERTIES BHD TROPICANA CORP BHD LBI CAPITAL BHD BCB BHD TADMAX RESOURCES BHD YNH PROPERTY BHD I-BHD GUOCOLAND MALAYSIA BHD TAMBUN INDAH LAND BHD SENTORIA GROUP BHD TAHPS GROUP BHD ASIAN PAC HOLDINGS BHD YTL LAND & DEVELOPMENT BHD DAIMAN DEVELOPMENT BHD SBC CORPORATION BHD SELANGOR PROPERTIES BERHAD PLENITUDE BHD COUNTRY HEIGHTS HOLDINGS BHD KLCI MUI PROPERTIES BERHAD GRAND HOOVER BHD MATRIX CONCEPTS HOLDINGS BHD FARLIM GROUP BHD MAGNA PRIMA BHD KEN HOLDINGS BHD TALAM TRANSFORM BHD CRESCENDO CORPORATION BHD SAPURA RESOURCES BHD KLPRP JIANKUN INTERNATIONAL BHD PASDEC HOLDINGS BHD O.S.K. HOLDINGS BHD EASTERN & ORIENTAL BHD ECOFIRST CONSOLIDATED BHD GROMUTUAL BHD Average GSB GROUP BHD MENANG CORP MALAYSIA BHD KARAMBUNAI CORP BHD COUNTRY VIEW BHD GLOBAL ORIENTAL BHD LBS BINA GROUP BHD PETALING TIN BHD KSL HOLDINGS BHD EUPE CORP BHD MALAYSIA PACIFIC CORP BHD SELANGOR DREDGING BHD DPS RESOURCES BHD ENRA GROUP BHD SEAL INCORPORATED BERHAD PLB ENGINEERING BERHAD PARAMOUNT CORP BHD ENCORP BHD TA GLOBAL BHD THRIVEN GLOBAL BHD BERJAYA ASSETS BHD SUNSURIA BHD TIGER SYNERGY BHD SOUTH MALAYSIA INDUSTRIES MAJUPERAK HOLDINGS BHD LIEN HOE CORP BHD HCK CAPITAL GROUP BHD SYMPHONY LIFE BHD A & M REALTY BHD TANCO HOLDINGS BHD WING TAI MALAYSIA BHD ISKANDAR WATERFRONT CITY BHD MALTON BHD PP7004/02/2013(031762) Page 6 of 16
YTD Performance of Big Cap Developers (>RM3b mkt cap) Share Price YTD Gain CY17 (>RM3b market cap) MALAYSIAN RESOURCES CORP UOA DEVELOPMENT BHD MAH SING GROUP BHD KLCI SP SETIA BHD IOI PROPERTIES GROUP BHD Average KLPRP UEM SUNRISE BHD IGB CORPORATION BHD ECO WORLD DEVELOPMENT SUNWAY BHD 0.0% 10.0% 20.0% 30.0% 40.0% Source: Bloomberg, Kenanga Research Property Loans Approved vs. Applied Property vs. Banking System Loans Approved 70% 60% 50% 40% 65% 61% Annual Average: Ratio of Property Loans Approved vs. Applied 63% 53% 51% 51% 52% 49% 47% 49% 40% 39% 50% 45% 40% 35% 30% 25% 25% 30% Annual Average: Property loans approved to Total Banking System loans approved 44% 43% 36% 37% 38% 36% 33% 35% 35% 30% 20% 20% 15% 10% 10% 5% 0% CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 YTD-CY17 0% CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 YTD-CY17 Source: BNM, CEIC, Kenanga Research Monthly LDR Average Lending Rates, Lending Spreads Total Deposits (RM'm) Total Loans (RM'm) Loan to Deposit Ratio Lending Spread to BLR (%) AVL (%) BLR (%) OPR (%) 2,000,000 92.0% 1,800,000 90.0% 1,600,000 88.0% 1,400,000 86.0% 1,200,000 84.0% 1,000,000 82.0% 800,000 80.0% 600,000 78.0% 400,000 76.0% 200,000 74.0% 0 72.0% Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Source: CEIC, BNM, Kenanga Research 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 0.00-0.50-1.00-1.50-2.00-2.50 PP7004/02/2013(031762) Page 7 of 16
Malaysia Residential Transaction Trends and Projections Msia: Residential Transactions in Units - YoY Chg MRTU and MRTV YoY Chg 40% 30% 20% 10% 0% -10% -20% Msia: Residential Transactions in Value - YoY Chg 33% KLPRP Index 27% 24% 18% 21% 22% 13% 14% 9% 10% 6% 1% 4% 1% -1% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F -5% -3% -10% -9% 1400 1200 1000 KLPRP Index 800 600 400-30% 200-40% -36% 0 Source: CEIC, JPPH/NAPIC, Kenanga Research Fwd PER & PBV levels Fwd PER at last price at 23 June 17 Fwd PER* Peak (Since 09) Fwd PER* Average (Since 09) Fwd PER Trough (Since 09) Fwd PBV at last price at 23 June 17 Fwd PBV Fwd PBV Fwd PBV Peak (Since 09) Average (Since 09) Trough (Since 09) UEMS 23.7 37.4 25.2 13.4 0.86 2.88 1.56 0.62 IOIPG 14.7 26.4 17.6 13.3 0.63 1.06 0.72 0.56 SPSETIA 12.8 37.3 24.2 13.8 1.36 3.37 2.15 1.15 SUNWAY 15.3 15.8 10.7 7.1 1.03 1.17 0.88 0.64 MAHSING 10.9 18.0 12.4 9.1 1.07 2.34 1.48 0.93 UOADEV 10.8 13.7 9.7 6.5 1.04 1.69 1.11 0.86 ECOWLD 42.3 393.4 116.1 28.1 1.26 8.66 2.23 1.03 MATRIX 6.9 8.1 6.8 5.2 1.41 1.97 1.56 1.29 CRESNDO 11.4 33.8 11.8 2.5 0.50 1.03 0.54 0.19 HUAYANG 6.0 7.4 4.6 2.2 0.56 1.59 0.75 0.28 MRCB* 39.5 5678.9 75.4-3596.3 0.97 7.16 4.33 0.95 KSL 7.4 9.9 5.3 2.2 0.47 1.11 0.54 0.21 SUNSURIA 11.5 27.8 15.9 6.9 1.43 1.36 1.04 0.76 A&M 21.2 23.1 12.3 5.0 0.88 0.95 0.50 0.23 MAGNA 75.7 220.8 16.1 72.7 1.21 4.16 1.57 0.74 AVERAGE* 19.3 62.3 20.6 13.4 0.98 2.38 1.19 0.68 * Stocks excluded from the average computation are MRCB due to its corporate restructuring activities, previous loss-making years and/or volatility in earnings. PP7004/02/2013(031762) Page 8 of 16
Unbilled Sales Visibility 1QCY17 Unbilled Sales Visibility ** RM'b Years UEMS* 3.66 1.7 IOIPG* 1.49 0.5 SPSETIA 7.85 1.9 SUNWAY* 1.40 1.0 ECOWLD 4.96 1.7 MAHSING 3.47 1.1 UOADEV 1.55 1.3 MRCB* 1.50 1.1 MATRIX 0.86 0.8 CRESNDO 0.16 0.5 HUAYANG 0.21 0.5 SUNSURIA 0.51 0.8 A&M 0.02 0.1 Total 27.6 1.1 Unbilled Sales Visibility (Years) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 FY12/13 FY13/14 FY14/15 FY15/16 1QCY16 2QCY16 3QCY16 4QCY16 1QCY17 Simple Average Min Max *IOIPG, Sunway, MRCB Revenue is based on their property division only. For UEMS, we are using Unrecognized Revenue due to the different treatment in revenue recognition of their Australia projects. ** Unbilled sales visibility based on our average 2-year forecast revenue Net Gearing Company FY17/18E FY18/19E UEM Sunrise 0.45 0.47 IOI Properties 0.61 0.63 SP Setia 0.37 0.25 Sunway Berhad* 0.44 0.42 Mah Sing Group (0.09) (0.09) UOA Development (0.09) (0.10) Eco World 0.67 0.65 Matrix Concepts 0.23 0.10 Crescendo 0.28 0.17 Hua Yang* 0.47 0.49 MRCB* (0.24) (0.26) KSL* (0.07) (0.10) Sunsuria 0.14 0.13 A&M (0.14) (0.14) MAGNA 0.25 0.18 Average (all) 0.22 0.19 Big-Cap Average (UEMS, IOIPG, SPSETIA, SUNWAY, MAHSING, UOADEV, ECOWLD) 0.34 0.32 Small-mid Cap Average 0.12 0.07 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 FY13/14 FY14/15 FY15/16 FY16/17 FY17/18E FY18/19E Average (all) Big-Cap Average (UEMS, IOIPG, SPSETIA, SUNWAY, MAHSING, UOADEV, ECOWLD) Small-mid Cap Average PP7004/02/2013(031762) Page 9 of 16
CALLs/TPs (Part 1 of 2) Developers New Call New TP (RM) Valuation (Discount to PROPERTY RNAV) Valuation (Discount to SoP) New FD SoP RNAV (RM) Quantum of TP revision Call Action Previous TP (RM) Previous Discount to FD SoP RNAV Previous Discount to SoP Previous FD SoP RNAV (RM) UEMS MP 1.33-69% -69% 4.30-8% Downgrade 1.45-66% -66% 4.30 OP IOIPG OP 2.30-57% -57% 5.31 0% Maintain 2.30-57% -57% 5.31 OP SPSETIA** OP 4.08-46% -46% 7.59 0% Maintain 4.08-46% -46% 7.59 OP SUNWAY MP 1.66-55% -29% 2.32 0% Maintain 1.66-55% -29% 2.32 MP ECOWLD MP 1.72-51% -46% 3.18 0% Maintain 1.72-51% -46% 3.18 MP MAHSING OP 1.67-48% -40% 2.80 0% Maintain 1.67-48% -40% 2.80 OP UOADEV MP 2.63-36% -36% 4.11 0% Maintain 2.63-36% -36% 4.11 MP MRCB MP 1.32-50% -15% 1.55 0% Maintain 1.32-50% -15% 1.55 MP KSL MP 1.30-82% -82% 7.07 0% Maintain 1.30-82% -82% 7.07 MP MATRIX MP 2.65-25% -25% 3.51 0% Maintain 2.65-25% -25% 3.51 MP CRESNDO MP 1.70-73% -73% 6.32 0% Maintain 1.70-73% -73% 6.32 MP HUAYANG MP 1.14-63% -63% 3.10-8% Maintain 1.24-60% -60% 3.10 MP SUNSURIA OP 1.61-40% -36% 2.52 0% Maintain 1.61-40% -36% 2.52 OP A&M OP 3.00-57% -57% 7.00 0% Maintain 3.00-57% -57% 7.00 OP MAGNA MP 1.60-35% -46% 2.94 0% Maintain 1.60-35% -46% 2.94 MP Simple Average -52% -48% -1% -52% -48% **Ex Rights basis CALLs/TPs (Part 2 of 2) Developers Comments UEMS Downgrade to MP and lower TP on wider property RNAV discount which is now pegged at -0.5SD (previously -0.25SD). We widen the discount factor due to more choices of heavyweight developers coming on stream (e.g. SETIA-I&P, SIME Properties) for investors to choose from. Considering its high exposure in Johor, we believe that investors may favour other Klang Valley based ones. IOIPG The stock remains a YTD laggard amongst the big-cap boys and is likely to deliver record earnings this year while sales is likely to make new highs thanks to their overseas drivers. SPSETIA SUNWAY ECOWLD MAHSING UOADEV MRCB KSL MATRIX CRESNDO HUAYANG Maintain CALL but lower TP on heightened sales and earnings risks. Widened RNAV discount which is now closer to its historical high levels (65%). It is operating in similar markets as the government housing schemes, which would mean stiffer competition. SUNSURIA A&M MAGNA Previous Call (RM) PP7004/02/2013(031762) Page 10 of 16
Peer Comparison NAME DEVELOPERS UNDER COVERAGE Price (23/6/17) Mkt Cap PER (x) Est. NDiv. Yld. Hist. ROE Fwd ROE P/BV Net Profit (RMm) FY17/18 NP Growth FY18/19 NP Growth (RM) (RMm) FY16/17 FY17/18 FY18/19 (%) (%) (%) (x) FY16/17 FY17/18 FY18/19 (%) (%) (RM) IOI PROPERTIES GROUP BHD* 2.16 11,893 18.3 14.9 14.8 3.4% 4.1% 4.2% 0.63 648.5 800.2 803.6 23.4% 0.4% 2.30 OUTPERFORM S P SPSETIA BHD*# 3.32 9,651 11.9 12.7 14.8 4.0% 9.7% 8.0% 1.35 808.0 761.3 653.4-5.8% -14.2% 4.08 OUTPERFORM UEM SUNRISE BHD* 1.20 5,445 37.0 23.3 33.8 0.0% 2.2% 3.4% 0.85 147.3 233.5 161.3 58.5% -30.9% 1.33 MARKET PERFORM SUNWAY BHD^ 1.68 8,009 14.8 15.4 14.8 5.3% 7.3% 6.7% 0.45 541.6 521.7 542.6-3.7% 4.0% 1.66 MARKET PERFORM MAH SING GROUP BHD 1.56 3,759 10.8 11.1 11.5 4.1% 10.1% 10.0% 1.08 346.8 338.9 327.5-2.3% -3.4% 1.67 OUTPERFORM ECO WORLD DEVELOPMENT 1.67 4,917 38.0 43.6 19.8 0.0% 3.7% 4.4% 1.30 129.3 112.9 248.8-12.7% 120.4% 1.72 MARKET PERFORM GROUP BHD UOA DEVELOPMENT BHD* 2.53 4,127 11.0 10.9 10.5 5.9% 19.4% 9.8% 1.05 373.9 379.2 391.4 1.4% 3.2% 2.63 MARKET PERFORM MALAYSIAN RESOURCES CORP 1.19 3,003 12.3 39.5 30.9 0.2% 8.6% 2.4% 0.97 244.1 76.0 97.2-69% 27.9% 1.32 MARKET PERFORM BHD# KSL HOLDINGS BHD 1.22 1,256 6.1 7.2 7.1 0.0% 8.8% 6.9% 0.46 204.6 173.7 177.1-15.1% 2.0% 1.30 MARKET PERFORM MATRIX CONCEPTS HOLDINGS BHD 2.71 1,577 8.4 7.0 6.6 5.4% 31.8% 22.7% 1.43 188.0 224.0 238.0 19.1% 6.3% 2.65 MARKET PERFORM SUNSURIA BERHAD 1.48 1,182 32.2 12.1 7.5 2.1% 6.9% 13.3% 1.50 36.7 98.0 157.0 167.2% 60.1% 1.61 OUTPERFORM CRESCENDO CORPORATION BHD* 1.70 387 13.4 12.6 12.2 2.6% 2.2% 8.0% 0.51 28.9 30.6 31.6 6.0% 3.3% 1.70 MARKET PERFORM HUA YANG BHD 1.04 366 6.0 5.9 5.1 1.7% 21.9% 12.2% 0.55 61.0 62.0 72.0 1.6% 16.1% 1.14 MARKET PERFORM A&M REALTY BHD 1.51 551 27.5 20.6 15.9 0.0% 3.3% 4.2% 0.86 20.1 26.7 34.6 33.2% 29.5% 3.00 OUTPERFORM MAGNA PRIMA BHD 1.49 495 62.7 76.2 45.0 0.4% 7.4% 1.1% 1.22 7.9 6.5 11.0-17.7% 69.2% 1.60 MARKET PERFORM Target Price Rating CONSENSUS NUMBERS IGB CORPORATION BHD 2.90 3,871 13.0 12.1 16.1 3.4% 6.7% 6.4% 0.78 298.0 320.4 240.3 7.5% -25.0% 3.00 NEUTRAL GLOMAC BHD 0.66 474 4.3 8.2 7.4 5.0% 10.7% 4.7% 0.42 110.4 57.8 64.3-47.6% 11.3% 0.70 NEUTRAL PARAMOUNT CORP BHD 1.84 781 10.4 9.7 9.2 4.9% 8.0% 8.3% 0.80 75.0 80.6 84.9 7.5% 5.3% 2.24 BUY TAMBUN INDAH LAND BHD 1.43 619 5.5 6.7 7.2 6.2% 21.5% 14.0% 1.03 112.2 92.3 86.6-17.8% -6.1% 1.58 NEUTRAL * Core NP and Core PER ^ Last price and TP is Ex-Bonus. # MRCB and SPSETIA is of ex-rights PP7004/02/2013(031762) Page 11 of 16
DEVELOPERS FWD PBV Fwd PBV: UEM Sunrise Fwd PBV: SP Setia Fwd PBV: Sunway Bhd Fwd PBV: Mah Sing Fwd PBV: UOA Development Fwd PBV: Matrix Concepts Fwd PBV: Hua Yang Fwd PBV: Crescendo PP7004/02/2013(031762) Page 12 of 16
Fwd PBV: MRCB Fwd PBV: IOI Properties Fwd PBV: KSL Fwd PBV: Eco World Fwd PBV: SUNSURIA Fwd PBV: A&M Fwd PBV: MAGNA PP7004/02/2013(031762) Page 13 of 16
DEVELOPERS FWD PER Fwd Core PER: UEM Sunrise Fwd Core PER: SP Setia Fwd PER: Sunway Bhd Fwd PER: Mah Sing Fwd Core PER: UOA Development Fwd PER: Matrix Concepts Fwd PER: Hua Yang Fwd Core PER: Crescendo PP7004/02/2013(031762) Page 14 of 16
Fwd PER: MRCB Fwd Core PER: IOI Properties FwdCore PER: KSL Fwd PER: Eco World FwdCore PER: SUNSURIA Fwd PER: A&M FwdCore PER: MAGNA PP7004/02/2013(031762) Page 15 of 16
Stock Ratings are defined as follows: Stock Recommendations OUTPERFORM : A particular stock s Expected Total Return is MORE than 10% MARKET PERFORM : A particular stock s Expected Total Return is WITHIN the range of -5% to 10% UNDERPERFORM : A particular stock s Expected Total Return is LESS than -5% Sector Recommendations*** OVERWEIGHT : A particular sector s Expected Total Return is MORE than 10% NEUTRAL : A particular sector s Expected Total Return is WITHIN the range of -5% to 10% UNDERWEIGHT : A particular sector s Expected Total Return is LESS than -5% ***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage. This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. Published and printed by: KENANGA INVESTMENT BANK BERHAD (15678-H) Level 12, Kenanga Tower, 237, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia Telephone: (603) 2172 0880 Website: www.kenanga.com.my Email: research@kenanga.com.my Chan Ken Yew Head of Research PP7004/02/2013(031762) Page 16 of 16