Property sector an “overweight”

Posted on | April 16, 2007

By THE EDGE

Stockbroking firms have an “overweight” rating on the property sector after the government announced a four-pronged strategy to reduce bureaucracy and enhance delivery in the real estate and construction sectors.

Aseambankers Research said the business friendly blueprint would result in lower cost of doing business and lead property developers to higher margin.

It said the prime beneficiaries would be those who were more proactive in identifying business opportunities, such as Sunway City Bhd, WCT Land Bhd, Sunrise Bhd, Mah Sing Group Bhd, SP Setia Bhd, Glomac Bhd and YNH Property Bhd.

“While the property sector is the main beneficiary of these initiatives, we believe the change in the public delivery system is also an extension of the incentives to fast-track development at the Iskandar Development Region, which is expected to welcome a slew of foreign direct investments,” it said in a research note on April 16.

However, Aseambankers said the new rulings could also lead to more property launches that could create an over-supply condition.

The research house has a “buy” call on Sunway City, Sunrise and WCT Land, with target price of RM4, RM3.92 and RM1.27, respectively. It maintains its “hold” calls on SP Setia and KLCC Property Holdings Bhd.

Meanwhile, OSK Investment Research said the removal of the 30% low-cost quota for housing development was the most appealing incentive under the government’s effort to encourage the build-then-sell (BTS) strategy.

In particular, the research house said SHL Consolidated Bhd would be the immediate beneficiary from the incentive, as SHL was one of the very few that had been successful in adopting the BTS strategy even in the absence of the incentives.

OSK Research expects most housing developers to slowly change their strategy to adopt the BTS strategy in view of the incentives offered by the government.

“As the trend progresses, players that have weak balance sheet of capital structure may potentially lose out. One of the few ways for them to survive going forward will be to merge with other bigger players,” it added.

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