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* On the rebound
The property sector posted two consecutive weekly gains since market correction hit a bottom in mid-February. Not even a much-anticipated interest rate hike by Bank Negara Malaysia last Thursday (March 4) managed to dampen buoyant sentiments as the KL Property Index posted a 1.4% gain last week. Surprisingly, most of the gains came on Friday (March 5) post the interest rate hike. All counters under coverage, with the exception of YNH, ended the week higher. On major shareholding changes, Employees Provident Fund (EPF) reported net accumulation of 0.7 million shares in SP Setia but sold 1.5 million shares in Sunrise.
* Property buyers unperturbed by interest rate hike
The much-anticipated interest rate hike by Bank Negara Malaysia has came to passing last Thursday with the Overnight Policy Rate (OPR) raised by 25 bps to 2.25%. We have in the past highlighted that this is a normalisation process rather than a tightening of monetary stance by the central bank. Hence, it will be gradual and has minimal impact on housing affordability in the near term. Anecdotal evidence supported our view as property buying post-interest rate hike remains strong. Last Saturday, SP Setia soft-launched, among others, over 50 units of Tecoma double storey semi-detached houses in Setia Alam priced from RM788,400 per unit. Within three hours, only three units remain unsold. The only downside will be higher cost to developers, which have financing schemes in place involving absorption of interest costs during construction.
* SP Setia revised sales target to RM2 billion
On the back buoyant sentiments and strong sales, it is not surprising then to hear SP Setia group’s president and CEO, Tan Sri Liew Kee Sin increasing the sales target for the financial year-ending Oct 31, 2010 to RM2 billion from RM1.65 billion. It has already achieved sales of RM608 million in 1QFY2010.
* 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. Our top picks are
Sunway City and SP Setia. The former may also have re-rating catalyst as its REIT listing gain further traction. Among non-rated property stocks, we also like IJM Land and Mah Sing. On the other hand, Sunrise offers significant upside of 53% and recent strong sales from its MK 28 project will provide the re-rating catalyst in the months ahead.
