Monday 22 Jul 2024
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This article first appeared in Capital, The Edge Malaysia Weekly on March 11, 2024 - March 17, 2024

IN the absence of the low base effect that accentuated year-on-year earnings growth in 2023, property developers — the best performing sector of Bursa Malaysia last year — are still expected to see growth in 2024 on the back of a stable interest rate regime and positive macroeconomic environment.

There is also a potential boost from stronger foreign demand, not just in Johor where a special economic zone is being jointly developed with Singapore, but also expectations of greater clarity in the requirements of the Malaysia My Second Home (MM2H) programme.

While analysts generally agree on a positive outlook for the property development sector and still reckon that double-digit earnings growth remains possible in 2024, they differ on the quantum of that earnings growth trajectory.

“Most of the property developers experienced robust earnings growth in FY2023 owing to a recovery in sales and construction progress. Looking ahead to FY2024, we anticipate a slightly diminished growth rate due to the elevated base from FY2023 despite the ongoing enhancement in sales and construction progress,” says Khoo Zing Sheng, assistant manager of equity research at AmInvestment Bank Bhd.

The investment bank currently expects an average earnings growth of 15% y-o-y for the property developers under its coverage in 2024. This is a downward revision from its earlier expectation of 27% to adjust for better-than-expected sales and construction advancements of 18% seen in 2023 compared with an earlier forecast of 6.3% made last year, he adds.

On a per share basis, the sector’s earnings are expected to grow 11.6% in 2024, slightly slower than the 12.2% in 2023, according to AmInvestment Bank.

Analysts at Maybank Investment Banking Group, however, continue to be far more bullish. They expect an average core earnings growth of 24.9% in 2024 for the property developers under its coverage, which is higher than the average of 18.3% in 2023.

RHB Research property analyst Loong Kok Wen stands out from the rest. While she is also positive on the outlook for the property sector this year, she expects a much lower earnings growth of between 3% and 4%. “Lower growth of around 3% and 4%, but it is because of some one-off items from selected companies, like reversal or write-down,” she says.

The Edge’s calculation of the average earnings growth of property developers with a market capitalisation of at least RM500 million in 2023 was 19.72%. Mid-sized companies Tanco Holdings Bhd, Plenitude Bhd, HCK Capital Group Bhd and KSL Holdings Bhd registered earnings that were double that of 2022.

Among the top developers, IGB Bhd led the pack with an earnings growth of 96% y-o-y to RM311.9 million in 2023. The group’s annual earnings were driven by better performance of the retail segment and favourable currency fluctuation, which resulted in a foreign exchange (forex) gain of RM58.9 million in FY2023, compared with a RM39 million forex loss in FY2022.

The property market gradually rose in 2023, higher after the downturn in 2020 due to the Covid-19 pandemic, says the Ministry of Finance’s Valuation and Property Services Department (JPPH) in its 2023 Property Market Report.

“A total of 399,008 transactions worth RM196.83 billion were recorded, each showing an increase of 2.5% and 9.9% respectively compared to 2022, which recorded 389,107 transactions worth RM179.07 billion. Of the total transactions, 77.7% (309,861 transactions) and 18.6% (74,405 transactions) were transfers dated in 2023 and 2022 respectively, while the remaining percentage share was for previous years’ transfers,” it says in the report.

Transaction value saw a higher increase in all subsectors — residential, commercial, industrial, agriculture and development land and others — of 7.1%, 17.5%, 13.1%, 4.6% and 13.8% respectively.

The residential subsector led the overall property market, contributing 62.8% to the total transaction volume. This was followed by agriculture (19%), commercial (10.1%), development land and others (6.1%) and industrial (2%).

In terms of transaction value, the residential subsector also took the lead with 51.3%, followed by commercial (19.5%), industrial (12.2%), agriculture (9.5%) and development land and others (7.5%).

JPPH expects the momentum in the property market to continue in 2024, supported by various initiatives outlined by the government under Budget 2024.

Apart from the various industrial and infrastructure development initiatives that are expected to help grow the economy, the government has allocated a special guarantee fund of RM1 billion to encourage reputable developers to revive identified abandoned projects. There may also be a boost of up to RM10 billion in housing loan guarantees provided by the government for housing loans under Skim Jaminan Kredit Perumahan.

Meanwhile, interest from foreign buyers are expected to rise, following the revitalisation and introduction of large-scale infrastructure projects. These are expected to boost economic activity and connectivity between regions and countries, especially Johor.

“With increasingly positive updates emerging from the development of Johor, particularly regarding the establishment of a special economic zone, we foresee continued upside for property developers with exposure to Johor. Additionally, the revitalisation and introduction of large-scale infrastructure projects, coupled with the expected increase in foreign buyers following the relaxation of MM2H requirements, have the potential to stimulate demand for property in Malaysia,” says Khoo, noting that there has been growing interest in Malaysian property stocks among foreign buyers over the past six months.

Optimism across the board

The developers that The Edge spoke to are also bullish on the prospects of the property market.

Mah Sing Group Bhd has a sales target of RM2.5 billion this year, higher than last year’s RM2.2 billion, according to its founder and group managing director Tan Sri Leong Hoy Kum in response to The Edge’s questions last Thursday.

“We achieved RM2.26 billion in sales in 2023, more than the target of RM2.2 billion. For 2024, we are setting an even higher sales target of RM2.5 billion, supported by a robust pipeline of launches,” he says, noting that the group sees very strong buying momentum, with the average take-up rate well above 90%.

“We are confident that the buying momentum in 2023 will extend into 2024. We have planned launches worth about RM2.8 billion for 2024.”

Meanwhile, Kerjaya Prospek Property Bhd has a more sober outlook for 2024. According to its executive chairman Datin Toh Siew Chuon, the group is cautiously optimistic that its revenue will be sustainable given the optimism in the property market.

LBS Bina Group Bhd has a sales target of RM1.8 billion for 2024, says its group executive chairman Tan Sri Lim Hock San in response to The Edge’s questions. The group plans to launch 10 projects with a total gross development value of RM2.33 billion in the Klang Valley, Pahang and Johor.

“Last year, most homebuyers were still cautious about buying property. But moving into 2024, we anticipate that the demand will get better,” he says.

Eastern & Oriental Bhd is launching more projects, especially in Penang, over the next 12 months. The group has more than RM1 billion worth of projects, says its managing director Tuck Cheong Kok.

“We believe the property cycle is showing green shoots of recovery. It had been in a down cycle for more than seven years since 2015. Nevertheless, a sustained economic growth coupled with a low interest rate environment in the medium term is required to enable a growth trend,” he says.

The immediate outlook does look strong at the moment, but mostly in the medium to lower-end segments, says Crest Builder Holdings Bhd group managing director Eric Yong in a written reply to The Edge’s questions last Thursday. “There are still many government initiatives pushing the market — and there is a continuous and renewed drive for affordable housing, which I believe will continue to push this market segment,” he adds.

Having said that, Yong cautions against discounting the prospects of higher-end properties for now. Due to the weak ringgit, there are potentially many foreign investments waiting to come in and invest, he says.

“While corporations are going for industrial investments, some individuals are going for higher-end residences for investment purposes. Many are confident that the ringgit is near bottom now, and their investments will give them good returns, whether in capital gains or on the forex side,” says Yong.

Is the property overhang over?

Over most of the last decade, “property overhang” has been a buzzword, with property developers, especially those from China, launching and building a huge supply of residential and commercial properties, especially in Johor.

Nevertheless, the overhang situation has improved since 2021, according to JPPH data.

In 2021, there were 36,863 overhang units in the market, and this declined to 25,816 last year. The number of unsold units under construction also declined, to 51,132 in 2023 from 72,692 in 2019.

RHB Research’s Loong thinks the overhang situation will continue to ease, noting that the property overhang has come down 30% from its peak in 2020. “The trend will continue to fall because over the years, developers have been very prudent in launching projects,” she tells The Edge.

Loong opines that the demand is now more real owing to the influx of investments, especially in Johor.

“Previously, there were only road connections between Johor and Singapore. Now, the government is building the RTS (Rapid Transit System), which will improve connectivity between Johor and Singapore,” she points out.

The government is also making it easier for foreign buyers to purchase properties in Malaysia, by imposing a flat rate stamp duty of 4% on the transfer of land ownership documents by non-citizens and foreign-owned companies, except for individuals with permanent resident status in Malaysia.

The easing of the requirements of the MM2H programme is expected to draw more tourists and foreign investors to Malaysia. On March 1, Minister of Home Affairs Datuk Seri Saifuddin Nasution Ismail said the Ministry of Tourism, Arts and Culture would soon present to the cabinet a policy paper outlining the full guidelines for the revamped MM2H programme.

Top picks

RHB Research’s top picks among the property developers are UEM Sunrise Bhd, with a target price of RM1.60; Sunway Bhd, with a target price of RM3.53; and IOI Properties Group Bhd (IOIPG), with a target price of RM2.75.

Meanwhile, TA Securities recently upgraded S P Setia Bhd to “buy” from “hold” as the risk-reward profile improved following the correction in its share price. The target price for the counter has been raised to RM1.10 from RM1.05 previously.

The research firm also has “buy” calls on IOIPG, with a target price of RM2.79; Sime Darby Property Bhd (TP: 91 sen); Sunway (TP: RM3.29); Mah Sing (TP: RM1.24); Glomac Bhd (TP: 46 sen); Ibraco Bhd (TP: RM1.16) and Paramount Corp Bhd (TP: RM1.17).

MIDF Research’s top picks in the property development sector are Mah Sing and Matrix Concepts Holdings Bhd, with target prices of RM1.12 and RM1.91 respectively.

“We like Mah Sing for its quick turnaround strategy and high exposure to affordable homes via its M series projects. Besides, its growing presence in the industrial property segment will support earnings growth in the medium to long term,” the research firm says in a March 7 note.

“Meanwhile, we like Matrix Concepts as its new sales remain encouraging while its landbank expansion in Labu will further buoy earnings growth. Besides, the dividend yield of Matrix Concepts is attractive at 5.6%.” 


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