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Upgrading all developers
In view of our increasingly bullish stance on the property sector and our upgrade of the sector from Trading Buy to Overweight, we are also upgrading all developers including Hunza Properties from Trading Buy to OUTPERFORM. Being largely exposed to the Penang market, Hunza Prop is well-positioned to ride on the strength in demand for Penang properties. Potential share price catalysts include 1) continued strong sales, 2) margin expansion from lower building costs, and 3) increasing investor interest in the Penang property market. We make no changes to our earnings forecasts or RM2.03 target price, which is based on a 40% discount to its RNAV.
Upgrading property sector
Despite all the problems faced by the sector including squeezed margins, poor sales for most developers, rising unemployment and the economic recession, the property sector was one of the best performing sectors last year. This was because property stocks came from a very low base, having been bashed down in 2008. Share prices also enjoyed a big rebound because the sector is considered to be cyclical and highbeta, and would benefit from the rebound of the stock market and economy. The sector, however, was dealt a temporary blow at end-Oct when the government announced a 5% RPGT that took effect on 1 Jan 2010.
Property stocks reacted negatively to the RPGT announcement and have been languishing since then. While we were also shocked by the move, we believe that the market has overreacted. Fundamentals are looking up as 1) the economy is forecast to return to growth in 4Q09 after being mired in recession in 1Q-3Q09, 2) the stock market’s spectacular 40%+ rebound in 2009 will help strengthen confidence and sentiment on properties, and 3) affordability of properties is near its all-time best and the low interest rate regime will encourage property purchases, especially with inflation preying on some consumers’ minds.
Valuation and recommendation
Hunza Prop’s property sales towards the end of 2008 and the beginning of 2009 were severely affected by the economic downturn. But sales improved in 3QFY6/09 and 4QFY6/09. We believe the company’s earnings have bottomed out and should improve with the pick-up in consumer sentiment and progress of construction of its projects. Total unbilled sales as at end-Sep 09 stood at RM220m, which we expect the company to recognise over the next year or so. As Hunza Prop is largely exposed to the Penang market, we view the company as a good play on the demand for Penang properties. Hunza Prop’s dividend yields are also the highest in our coverage of property stocks. Upgrade from Trading Buy to OUTPERFORM. Potential share price catalysts include 1) continued strong sales, 2) margin expansion from lower building costs, and 3) increasing investor interest in the Penang property market. We make no changes to our earnings forecasts and RM2.03 target price, which is based on a 40% discount to its RNAV.
In view of our increasingly bullish stance on the property sector and our upgrade of the sector from Trading Buy to Overweight, we are also upgrading all developers including Hunza Properties from Trading Buy to OUTPERFORM. Being largely exposed to the Penang market, Hunza Prop is well-positioned to ride on the strength in demand for Penang properties. Potential share price catalysts include 1) continued strong sales, 2) margin expansion from lower building costs, and 3) increasing investor interest in the Penang property market. We make no changes to our earnings forecasts or RM2.03 target price, which is based on a 40% discount to its RNAV.
Upgrading property sector
Despite all the problems faced by the sector including squeezed margins, poor sales for most developers, rising unemployment and the economic recession, the property sector was one of the best performing sectors last year. This was because property stocks came from a very low base, having been bashed down in 2008. Share prices also enjoyed a big rebound because the sector is considered to be cyclical and highbeta, and would benefit from the rebound of the stock market and economy. The sector, however, was dealt a temporary blow at end-Oct when the government announced a 5% RPGT that took effect on 1 Jan 2010.
Property stocks reacted negatively to the RPGT announcement and have been languishing since then. While we were also shocked by the move, we believe that the market has overreacted. Fundamentals are looking up as 1) the economy is forecast to return to growth in 4Q09 after being mired in recession in 1Q-3Q09, 2) the stock market’s spectacular 40%+ rebound in 2009 will help strengthen confidence and sentiment on properties, and 3) affordability of properties is near its all-time best and the low interest rate regime will encourage property purchases, especially with inflation preying on some consumers’ minds.
Valuation and recommendation
Hunza Prop’s property sales towards the end of 2008 and the beginning of 2009 were severely affected by the economic downturn. But sales improved in 3QFY6/09 and 4QFY6/09. We believe the company’s earnings have bottomed out and should improve with the pick-up in consumer sentiment and progress of construction of its projects. Total unbilled sales as at end-Sep 09 stood at RM220m, which we expect the company to recognise over the next year or so. As Hunza Prop is largely exposed to the Penang market, we view the company as a good play on the demand for Penang properties. Hunza Prop’s dividend yields are also the highest in our coverage of property stocks. Upgrade from Trading Buy to OUTPERFORM. Potential share price catalysts include 1) continued strong sales, 2) margin expansion from lower building costs, and 3) increasing investor interest in the Penang property market. We make no changes to our earnings forecasts and RM2.03 target price, which is based on a 40% discount to its RNAV.
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