SIME (MP; TP: RM7.90)

Property Developers A Social Housing Themed Budget By Sarah Lim l sarahlim@kenanga.com.my NEUTRAL We laud the government s efforts to help the B40 group as Budget 2017 saw a lot more social housing measures. However, it is slightly disappointing for listed developers under our coverage as it failed our and market expectations of easing banking policies to the sector, particularly for general first-time home buyers, and higher EPF Account 2 allocation for firsttime home buyers. There were some negative surprises including the increase in stamp duty (3% to 4%) for properties priced above RM1m/unit. There was also no infrastructure roll-outs mentioned for Malaysian Vision Valley, which could directly benefit SIME (MP; TP: RM7.90) and MATRIX. Since MATRIX s total return is now 8% given the recently rally, we downgrade our call to MARKET PERFORM with an unchanged TP of RM2.65 given no near-term catalysts that we can identify. As highlighted in our recent Budget 2017 Preview report, there could be some profit-taking amongst listed developers, especially big-cap ones which had rallied recently on those expectations. The next sentiment booster for the sector is the potential OPR cut (25bps) but it will at best help developers to achieve current sales targets and maintain market share. For now, we maintain NEUTRAL on Developers pending outlook for 2017. Social housing theme prevails. The measures announced were largely for social housing, which is a big plus for the B40 group. Key social housing highlights include National Blue Ocean Strategy (NBOS) which addresses homes priced no more than RM300k/unit (e.g. PR1MA), to name a few (refer to overleaf table). The government is also introducing urban areas for rental to eligible youths. There were no major easing banking policies towards the sector other than the special stepup end financing scheme (provide up to 100% from 90% financing) which will only be for the PR1MA program. This does not significantly benefit developers under our coverage. We deem this as a slightly disappointing Budget for listed developers under our coverage as it is below our and market expectations. As highlighted in our recent sector report (Budget-2016 Preview, 19/10/16), the market was hoping for some easing of banking policies and higher EPF Account 2 allocation for first-time home buyers, while our own expectation was just for the latter measure. We had also expected an extension of the 50% stamp duty exemption for instruments of transfer/housing loan instruments for first-time home buyers (expires Dec 2016). However, what was announced was a 100% exemption but only limited to units of no more than RM300k for first-time home buyers (Jan 2017 to Dec 2018), which again may not benefit listed developers significantly. The higher stamp duty on instruments of transfer of real estate of more than RM1m from 3% to 4% (by 1-Jan-2018) is a negative surprise, which may deter some buyers and make it tougher for developers to launch such products. In fact, the commercial segment, like shop-lots or sizeable office/retail spaces, may feel the heat. Nonetheless, most developers under our coverage have 70%-80% of their local launch pipelines of products priced below RM1m/unit and are likely to ramp up more of the affordable housing supply to maintain sales levels. In the meantime, this may potentially help developer s clear inventories (i.e. those with titles) running up to the implementation date of 1-Jan-2018; we believe this would not cause an over surge in sales as demand for these properties have softened significantly. Disappointingly, there was no mention of Malaysian Vision Valley infrastructure roll-outs. Based on our current TP of RM2.65 for MATRIX, total returns is now 8% due to the recent rally and thus, we downgrade our CALL to MARKET PERFORM from OUTPERFORM. Reiterate NEUTRAL on Developers. Budget 2017 is largely a social housing-theme one, which does not benefit those under our coverage. We had mentioned in our previous report that there could be some profit-taking amongst listed developers, especially big-cap ones which had rallied recently (refer to charts below). We reckon the odds of developers missing targets for this year and guiding for more conservative ones for next year, have just increased due to the absence of goodies for private developers this time around amidst an already challenging landscape. However, we will seek further guidance from developers in the coming result season for 2017 outlook, especially as quite a number of developers have proven creative and aggressive in marketing products to sustain their sales this year. The next major sentiment booster is the potential OPR cut (25bps) in the upcoming MPC meeting. Our house view is that while there is room to do so, there is no major urgency. Even if the OPR cut takes place, it will at best help developers to achieve current sales targets and maintain market share. PP7004/02/2013(031762) Page 1 of 10

Budget 2017 Measures Stamp duty exemption be increased to 100% on instruments of transfer and housing loan instruments, to help reduce the cost of first home ownership, compared to 50% at present. This exemption is limited to houses with the value up to RM300,000 for first home buyers only for the period between 1 January 2017 and 31 December 2018. Rate of stamp duty on instruments of transfer of real estate worth more than RM1 million, will be increased from 3% to 4% effective 1 January 2018. MyBeautiful New Home (Under National Blue Ocean Strategy (NBOs)) o Allocation of RM200m for B40 category (household with monthly income of RM3,900 and below) for 5,000 units of homes to be built ranging from RM40,000 to RM50,000 per unit. Under this scheme, government will finance RM20,000 while the remainder will be paid as instalments by owner. These houses will be built on owners own land; land permitted by the landowner; and land awarded by state governments. o Through NBOS, we will provide Government s vacant lands at strategic locations to GLCs and Perumahan Rakyat 1Malaysia (PR1MA) to build more than 30,000 houses with the selling price ranging between RM150,000 and RM300,000 which is much lower than the market price from RM250,000 to RM400,000. To build around 10,000 houses in urban areas for rental to eligible youths with permanent job including young graduates entering labour market. They may rent up to a maximum five years, at a lower than the market rate, while they strengthen their financial position to own a house PR1MA: o To-date, 12,000 units worth RM3.3b has been booked while 85,000 units are at various stages of approval. Through NBOS, government to provide vacant lands at strategic locations to PR1MA and GLCs to build more than 30,000 houses with selling price ranging between RM150k-RM300k. NEW special step up financing scheme whereby loans up to 100% (from 90%) with loan rejection rates to be reduced drastically. SPNB / People s Friendly Home (PMR) o Build 5,000 units of Rumah Mesra Rakyat with a subsidy of RM20,000 for each house through an allocation of RM200m PPA1M o To complete 30,000 units of 1Malaysia Civil Servants Housing (PPA1M) with selling price between RM90,000 and RM300,000, which is 20% below the market price People's Housing Programme (PPR): o Build 21,100 houses with allocation of RM710m. These PPR houses will be sold between RM35,000 and RM42,000, even though the actual construction cost is between RM120,000 and RM160,000. For Second Generation House infrastructure development, a sum of RM200 million is allocated to FELDA, RM100 million for FELCRA and RM100 million for RISDA. To build and refurbish 17,000 units of destitute and dilapidated houses in remote villages and Orang Asli settlements with an allocation of RM350 million. Each unit will be given a assistance for renovation between RM1,000 and RM15,000 depending on the condition of the houses. Increase the public servants housing loans eligibility from between RM120,000 and RM600,000 to between RM200,000 and RM750,000. Source: Budget Speech 2017, Kenanga Research Changes in CALLs/TPs Developers New Call New TP (RM) Valuation (Discount to PROPERTY RNAV) Valuation (Discount to SoP) New FD RNAV/SOP (RM) Quantum of TP revision Call Action UEMS UP 1.00-77% -77% 4.28 0% Maintain IOIPG MP 2.57-54% -54% 5.56 0% Maintain SPSETIA MP 3.40-39% -39% 5.55 0% Maintain SUNWAY MP 3.23-61% -36% 5.03 0% Maintain ECOWLD OP 1.58-51% -46% 2.91 0% Maintain MAHSING MP 1.60-48% -41% 2.72 5% Maintain UOADEV MP 2.54-36% -36% 4.00 0% Maintain MRCB MP 1.33-72% -23% 1.72 0% Maintain KSL UP 0.99-86% -86% 7.07-10% Maintain MATRIX MP 2.65-25% -25% 3.51 0% Downgrade CRESNDO MP 1.60-75% -75% 6.32 0% Maintain HUAYANG UNDER UNDER UNDER UNDER 2.64 UNDER Note: For further details and explanation, please refer to APPENDIX Source: Kenanga Research UNDER PP7004/02/2013(031762) Page 2 of 10

APPENDIX YTD Performance of Big Cap Developers (>RM3b mkt cap) Share Price YTD Gain CY16 (>RM3b market cap) ECO WORLD DEVELOPMENT GROUP KLCI SUNWAY BHD KLPRP IGB CORPORATION BHD UEM SUNRISE BHD SP SETIA BHD Average IOI PROPERTIES GROUP BHD MAH SING GROUP BHD UOA DEVELOPMENT BHD -10.0%-5.0% 0.0% 5.0% 10.0%15.0%20.0%25.0%30.0%35.0% Source: Bloomberg, Kenanga Research YTD Performance of Small-mid Cap Developers (<RM3b mkt cap) Share Price YTD Gain CY16 (<RM3b market cap) -55.0% -35.0% -15.0% 5.0% 25.0% 45.0% 65.0% TANCO HOLDINGS BHD THRIVEN GLOBAL BHD TIGER SYNERGY BHD EWEIN BHD GLOBAL ORIENTAL BHD NAIM HOLDINGS BERHAD MULTI-USAGE HOLDINGS BHD MUI PROPERTIES BERHAD DPS RESOURCES BHD Y&G CORP BHD SAPURA RESOURCES BHD MALAYSIA PACIFIC CORP BHD COUNTRY VIEW BHD ASIAN PAC HOLDINGS BHD TALAM TRANSFORM BHD MAJUPERAK HOLDINGS BHD SEAL INCORPORATED BERHAD SENTORIA GROUP BHD GSB GROUP BHD MALTON BHD MCT BHD YTL LAND & DEVELOPMENT BHD MK LAND HOLDINGS BHD CRESCENDO CORPORATION BHD WING TAI MALAYSIA BHD SELANGOR PROPERTIES BERHAD PLB ENGINEERING BERHAD GRAND HOOVER BHD TA GLOBAL BHD BCB BHD KSL HOLDINGS BHD KEN HOLDINGS BHD PARAMOUNT CORP BHD LBI CAPITAL BHD SYMPHONY LIFE BHD AMCORP PROPERTIES BHD GLOMAC BHD SELANGOR DREDGING BHD ENRA GROUP BHD IBRACO BHD JKG LAND BHD HUA YANG BHD ENCORP BHD SBC CORPORATION BHD MEDA INC BHD PLENITUDE BHD ISKANDAR WATERFRONT CITY BHD GUOCOLAND MALAYSIA BHD O.S.K. HOLDINGS BHD DAMANSARA REALTY BHD BERJAYA ASSETS BHD BINA DARULAMAN BHD MAGNA PRIMA BHD GROMUTUAL BHD SOUTH MALAYSIA INDUSTRIES EUPE CORP BHD KLCI Average SHL CONSOLIDATED BHD TROPICANA CORP BHD TAHPS GROUP BHD KLPRP FARLIM GROUP BHD ECOFIRST CONSOLIDATED BHD SUNSURIA BHD MATRIX CONCEPTS HOLDINGS BHD TITIJAYA LAND BHD PETALING TIN BHD PJ DEVELOPMENT HOLDINGS BHD HCK CAPITAL GROUP BHD LAND & GENERAL BHD JIANKUN INTERNATIONAL BHD TAMBUN INDAH LAND BHD ORIENTAL INTEREST BHD MALAYSIAN RESOURCES CORP BHD LIEN HOE CORP BHD DAIMAN DEVELOPMENT BHD COUNTRY HEIGHTS HOLDINGS BHD YNH PROPERTY BHD EASTERN & ORIENTAL BHD I-BHD IVORY PROPERTIES GROUP BHD MENANG CORP MALAYSIA BHD KARAMBUNAI CORP BHD LBS BINA GROUP BHD BERTAM ALLIANCE BHD MKH BHD A & M REALTY BHD TADMAX RESOURCES BHD PASDEC HOLDINGS BHD Source: Bloomberg, Kenanga Research PP7004/02/2013(031762) Page 3 of 10

CALLs/TPs (Part 1 of 2) Developers New Call New TP (RM) Valuation (Discount to PROPERTY RNAV) Valuation (Discount to SoP) New FD RNAV (RM) Quantum of TP revision Call Action Previous TP (RM) Previous Discount to Property RNAV Previous Discount to SoP Previous FD RNAV (RM) UEMS UP 1.00-77% -77% 4.28 0% Maintain 1.00-77% -77% 4.28 UP IOIPG MP 2.57-54% -54% 5.56 0% Maintain 2.57-54% -54% 5.56 MP SPSETIA MP 3.40-39% -39% 5.55 0% Maintain 3.40-39% -39% 5.55 MP SUNWAY MP 3.23-61% -36% 5.03 0% Maintain 3.23-61% -36% 5.03 MP ECOWLD OP 1.58-51% -46% 2.91 0% Maintain 1.58-51% -46% 2.92 OP MAHSING MP 1.60-48% -41% 2.72 5% Maintain 1.53-55% -44% 2.72 MP UOADEV MP 2.54-36% -36% 4.00 0% Maintain 2.54-36% -36% 4.00 MP MRCB MP 1.33-72% -23% 1.72 0% Maintain 1.33-72% -23% 1.72 MP KSL UP 0.99-86% -86% 7.07-10% Maintain 1.10-84% -84% 7.07 UP MATRIX MP 2.65-25% -25% 3.51 0% Downgrade 2.65-25% -25% 3.51 OP CRESNDO MP 1.60-75% -75% 6.32 0% Maintain 1.60-75% -75% 6.32 MP HUAYANG UNDER UNDER UNDER UNDER 2.64 UNDER UNDER 1.37-48% -48% 2.64 MP Weighted Average -53% -46% 0% Weighted Average -54% -47% Simple Average -56% -49% 0% Simple Average -56% -49% Source: Kenanga Research Previous Call (RM) CALLs/TPs (Part 2 of 2) Developers Comments UEMS No changes to CALL/TP. IOIPG No changes to CALL/TP. SPSETIA No changes to CALL/TP. SUNWAY No changes to CALL/TP. ECOWLD No changes to CALL/TP. MAHSING No changes to CALL/TP. UOADEV No changes to CALL/TP. MRCB No changes to CALL/TP. KSL No changes to CALL/TP. MATRIX No changes to TP but CALL downgraded as the stock did rally and is close to our current TP, while we see no impetus to revise up our TP. CRESNDO No changes to CALL/TP. HUAYANG Placed UNDER pending today s briefing Source: Kenanga Research PP7004/02/2013(031762) Page 4 of 10

Peer Comparison NAME Price (21/10/16) DEVELOPERS UNDER COVERAGE (RM) Mkt Cap PER (x) Est. NDiv. Yld. (RMm) FY15/16 FY16/17 FY17/18 Hist. ROE P/BV (%) (%) (x) Net Profit (RMm) FY15/16 FY16/17 FY17/18 FY16/17 NP Growth FY17/18 NP Growth Target Price (%) (%) (RM) IOI PROPERTIES GROUP BHD* 2.51 11,072 17.1 14.8 14.8 3.2 4.1 0.68 648.5 749.1 750.5 15.5 0.2 2.57 MARKET PERFORM S P SETIA BHD* 3.51 9,892 10.0 13.3 12.4 4.8 13.9 1.21 918.3 692.0 744.2-24.6 7.5 3.40 MARKET PERFORM UEM SUNRISE BHD* 1.15 5,218 20.4 31.1 30.4 1.4 3.9 0.83 257.2 168.5 172.4-34.5 2.3 1.00 UNDERPERFORM SUNWAY BHD* 3.04 6,184 8.8 10.8 10.7 3.2 11.7 0.76 594.2 484.6 489.7-18.4 1.0 3.23 MARKET PERFORM MAH SING GROUP BHD^ 1.60 3,855 10.8 10.2 9.9 4.0 14.3 1.15 357.2 379.7 389.5 6.3 2.6 1.60 MARKET PERFORM ECO WORLD DEVELOPMENT 1.34 3,685 72.1 31.3 15.4 0.0 2.5 0.98 44.0 126.5 257.7 187.8 103.7 1.58 OUTPERFORM GROUP BHD UOA DEVELOPMENT BHD* 2.70 4,405 10.3 10.5 9.9 5.6 14.1 1.24 399.0 391.0 414.6-2.0 6.0 2.54 MARKET PERFORM MALAYSIAN RESOURCES CORP BHD 1.39 2,892-52.6 31.4 57.4 0.6-3.3 1.43-74.6 125.2 68.4-267.8-45.3 1.33 MARKET PERFORM KSL HOLDINGS BHD 1.11 1,143 5.0 5.3 6.1 0.0 10.5 0.48 211.5 198.4 190.3-6.2-4.1 0.99 UNDERPERFORM MATRIX CONCEPTS HOLDINGS BHD 2.59 1,479 6.2 7.1 6.4 5.7 31.8 1.50 255.2 224.2 248.1-12.1 10.7 2.65 MARKET PERFORM CRESCENDO CORPORATION BHD* 1.53 348 19.6 13.7 11.1 2.9 2.2 0.40 17.8 25.5 31.6 43.0 24.1 1.60 MARKET PERFORM HUA YANG BHD 1.28 451 4.1 4.2 5.2 2.4 21.9 0.70 211.5 198.4 190.3-6.2-4.1 UNDER Rating UNDER CONSENSUS NUMBERS IGB CORPORATION BHD 2.49 3,324 16.6 13.1 11.9 3.2 4.7 0.8 200.1 253.6 280.3 26.8 10.5 4.80 NEUTRAL GLOMAC BHD 0.78 561 3.9 8.6 7.0 5.4 14.2 0.5 145.4 65.1 79.6-55.2 22.2 0.77 NEUTRAL PARAMOUNT CORP BHD 1.46 617 9.6 9.1 8.6 5.5 7.2 0.7 64.1 67.7 71.9 5.6 6.3 2.18 BUY TAMBUN INDAH LAND BHD 1.49 636 5.9 6.3 5.8 5.1 23.5 1.3 106.9 101.6 108.8-5.0 7.1 1.57 BUY * Core NP and Core PER ** Crescendo per share data is based on non-fully Diluted ^ Last price and TP is Ex-rights and Ex-Bonus. Source: Kenanga Research PP7004/02/2013(031762) Page 5 of 10

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Stock Ratings are defined as follows: Stock Recommendations OUTPERFORM :A particular stock s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). MARKET PERFORM :A particular stock s Expected Total Return is WITHIN the range of 3% to 10%. UNDERPERFORM :A particular stock s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). Sector Recommendations*** OVERWEIGHT :A particular sector s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). NEUTRAL :A particular sector s Expected Total Return is WITHIN the range of 3% to 10%. UNDERWEIGHT :A particular sector s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). ***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) 8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Telephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: www.kenanga.com.my Chan Ken Yew Head of Research PP7004/02/2013(031762) Page 10 of 10