Maintain NEUTRAL on developers. Budget 2013 property
measures were RPGT hikes to 15%-10%, extension of the 50% stamp duty reduction
for homes <RM400k/unit and affordable housing incentives. While these were
within our expectations, immediate term share price rebounds are expected for
developers which had been prematurely sold down prior to the Budget.
Developers’ Fwd PBV valuations are also trading close to trough levels.
However, we are NOT OVERWEIGHTING the sector as we do not see any strong
immediate term catalysts in 4Q12 beyond
our expected immediate short term rebound, as GE risks may add more
uncertainties. Also, the gradual yet continuous tightening of real-estate
policies to address general affordability issues may cap longer term demand
sentiments; investors may find it tougher to exit the market, given the
increasing disparity between primary and secondary markets. We may review our
sector call next year depending on the GE timing and catalytic news (e.g. RRI
land awards, TRX project awards). Potential risks (upward bias) to our calls are
earlier than expect awards (by 4Q12) of government projects like TRX to developers
under our coverage since the TRX realignment of existing utilities will be completed
in Oct-12. Our 4Q12 Top Pick remains as UOA Development (OP; TP: RM2.30) as a
‘defensive developer’.
Key Budget 2013
measures are; (1) RPGT hike to 15%
(10% previously) for the first 2 years from purchase date and to 10% (5%
previous) for the 3rd-5th year; after 5 years, there is no RPGT; (2) Extension
of 50% stamp duty exemption for MOT/SPA for purchase of first residential property
of up to RM400,000 (previously RM350,000); (3) affordable housing schemes
(refer overleaf); (4) Tax exemption for property developers of the Tun Razak
Exchange (TRX) project.
Within our
expectations. A RPGT hike and more affordable housing incentives were
announced in the Budget in line with our expectations highlighted in our
pre-Budget 2013 report (13/9/12). On the RPGT hike, we previously highlighted
that if this were to be the case, we would not be expecting a significant
impact on the physical market, particularly for developers, as the first two years
are typically the construction period for new properties. It may slightly deter
some of the secondary market transactions, particularly for investors with
short horizons; this measure does match up with the government’s aim to reduce
speculative activities, but as it is, new launches are more attractive given
the better financing/marketing schemes (e.g. DIBS, rebates), low interest rates
and property valuations at developers’ price. Other measures that were not
anticipated are ‘largely Neutral’, like the extension of the 50% stamp duty
exemption for MOT/SPA for purchase of first residential property of up to
RM400,000 (refer overleaf).
Knee-jerk reactions
were premature, so get ready for a short term rebound. We understand that
the market expected worse measures, with rumours of stamp duty hikes and RPGT
hikes of up to 30% for the first 5 year holding period (we definitely thought
these were unlikely because it will hurt future government projects like RRI
and TRX), resulting in a preBudget knee-jerk with some of developers’ share
prices dipping by 14% from a month ago. We do expect an immediate term rebound
to normalize levels (prices at one month ago or before media speculations of
Budget 2013) over the next few weeks.
Short-term rebound recommended plays are UOA Development (OP; TP:
RM2.30), IJMLAND (OP; TP: RM2.60), UEMLAND (MP; TP: RM1.85), Mah Sing Group
(MP; TP: RM2.40). Once these stocks revert to more “normalized levels”, we
expect our Market Perform calls to remain range-bound due to lack of catalytic
news flow and GE risks.
Nevertheless,
maintain NEUTRAL on developers as we recommend that investors be selective
or adopt a trading stance. Although most of the developers under coverage are
trading close to trough levels, we do not see any near term catalysts beyond
the immediate term rebounds as nearing GE risks will keep the sector’s
valuations capped. Most of the developers under our coverage Fwd PBV valuations
remained lower than last year’s average due to the onset of mortgage
assessments using net rather than gross pay (refer overleaf).
4Q12 Top Pick remains
as UOA Development (OP; TP: RM2.30) for a more sustainable upside, due to
its strong dividend yields of 7.9% and their ability to meet their dividend obligations.
Crest Builder (OP; TP: RM1.34 as we
expect more catalytic news flow), SP Setia (MP; TP: RM3.80) and Hunza
Properties (UP; TP: RM1.50) are maintained.
Source: Kenanga
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