MIDF Positive On Property Sector Rising With Declining Overhang

Data released by Bank Negara Malaysia (BNM) revealed total loan application for  purchase of property increased to RM52.1b (+30.6%mom) in March due  to low base in February.

Recall, February saw a decline of -21%mom.

MIDF Research said today (May 16), on yearly basis, loan application in March was lower (-12.7%yoy) due to high  base in March 2023. That brought total loan application to be marginally  lower at RM143b (-0.7%yoy) in 1QCY24.

Despite the marginal dip in loan  applications in 1QCY24, MIDF believes that demand for property should pick  up and remain healthy in 2024 as the landscape of property market  improved. Besides, OPR is maintained at 3% in May 2024 and hence that  should further support the buying interest on property. 

Higher approved loan in 1QCY24. On monthly basis, approved loan  for purchase of property increased to RM22b (+26.3%mom) in March,  driven by the higher loan application. On yearly basis, approved loan was  lower (-13%yoy) in March. Meanwhile, cumulative approved loan in  1QCY24 was higher at RM60b (+2.3%yoy) despite lower loan application  mainly helped by higher percentage of total approved loan over total  applied loan of 42% in 1QCY24 against 41% in 1QCY23. The higher  approved loan in 1QCY24 suggests overall better new sales of property  developers in 1QCY24. 

Positive development in Johor. According to Menteri Besar Datuk Onn Hafiz Ghazi, Johor has proposed establishing  the Johor-Singapore Special Economic Zone (JS-SEZ) in the Iskandar Malaysia region and Pengerang. This is following signing  of memorandum of understanding between Malaysia and Singapore on 11th January 2024. The proposed JS-SEZ in the  Iskandar Malaysia and Pengerang should benefit property companies with exposure to Johor. Note that UEM Sunrise (Non rated) has 4,471 acres of land in Gerbang Nusajaya and 1,172 acres of land in Puteri Harbour.

Similarly, IOI Properties Group  has exposure in Johor with a remaining landbank of 3,868 acres in Johor. Meanwhile, Sunway Berhad has 1,770 acres of  land in Sunway City Iskandar Puteri and Mah Sing Group has a remaining landbank of 1,082 acres in Johor and further  expanding its landbank in Johor as it recently proposed to acquire 100 acres of land in Mukim Pulai, Johor Bahru.

On the  other hand, Eco World Development Group has an undeveloped landbank of 1,295 acres in Johor. In a nutshell, the  establishment of JS-SEZ bodes well for development potential of developers with landbank in Johor. 

Maintain POSITIVE on property sector. MIDF remains POSITIVE in the property sector as overall outlook for the sector  is improving with declining residential overhang.

The unchanged OPR at 3% is also supportive to the recovery in property  demand. Besides, the better outlook for property market in Johor which is driven by Johor Bahru-Singapore Rapid Transit  System (RTS) Link and Johor-Singapore Special Economic Zone will further buoy the property sector in Malaysia.

Meanwhile,  MIDF revised their TP for Sunway Berhad to RM3.69 from RM3.01 as they update their valuation on healthcare and construction  divisions.

MIDF continues to see strong catalyst from listing of Sunway Berhad healthcare division.

On the other hand, their TP for S P Setia is under review, pending the quarterly results announcement.

Our top picks for the sector are Mah Sing Group  (BUY, TP: RM1.42) and Matrix Concepts (BUY, TP: RM1.91).

MIDF favours Mah Sing as they see stable sales prospects  from its affordable residential segment. Besides, its growing property presence in Johor is expected to drive earnings and  sales growth going forward.

Meanwhile, MIDF likes Matrix Concepts due to its stable outlook which is driven by its Sendayan  township in Seremban that focused on affordable landed home. Besides, the dividend yield of Matrix Concepts is attractive  at 5.5%.

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