Strong rebound
The KL Property Index gained 4.2% last week, beating the 1.4% gain in the benchmark FBM-KLCI. All property stocks under coverage posted gains. Among these stocks, the big winners were SP Setia (+4.8%) and YNH (+4.7%). On major shareholding changes, Employees Provident Fund (EPF) acquired 0.5 million shares in SP Setia and 0.1 million shares in Sunrise. Datuk Dr Yu Kuan Chon continued to support YNH shares with 0.3 millon added. Brahmal A/L Vasudevan also bought 0.1 million shares in Glomac.
• Notable property news
Key highlight for the week was the revelation that Glomac is currently negotiating the acquisition of a major mixed development landbank in KL with potential GDV of RM4 billion to 5 billion. If this deal materialises, Glomac will more than double its existing GDV of RM3.4 billion.
Other notable news for the week include Mah Sing achieving strong sales of RM516 million in 1Q2010 which means its RM1 billion sales target this year could easily be reached given its strong pipeline of residential launches which have been well received. The company also renewed its interest of expanding to Sabah as it was reportedly looking for land there to build residential homes and villas for foreign buyers interested in the Malaysia My Second Home (MM2H) programme. Meanwhile, the slow take-up of new office space at GTower confirmed our belief that the office market is facing oversupply and downward pressure on rent. Since completion in 2009, GTower has confirmed occupancy of 48% and management expect to achieve 75% occupancy by January 2011. Rental including service charge is RM7.50 psf.
• Maintain OVERWEIGHT
We remain bullish on the property sector, in particular the residential subsegment, as we believe investors’ concern on the impact of interest rate hike has been overblown. We hold the view that interest rate hike will be gradual and minimal. Further to that, property sales is driven more by sentiment, which remains buoyant, rather than interest rate alone. We like the residential sub-segment on expectation of higher sales in CY2010 amid still low interest rate and improving sentiments.
We see little upside in big cap property stocks and as such prefer laggard mid-cap property stocks such as Sunway City and Sunrise. The former may have re-rating catalyst from its REIT listing while the latter offers significant upside of 57% and recent strong sales from its MK 28 project will continue to underpin earnings visibility. Among non-rated property stocks, we also like Mah Sing and IJM Land.
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