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· Sunway City gained 21.8%
Although the FBM-KLCI benchmark index and the KL Property Index ended the week largely unchanged, several property counters registered significant gains. Among stocks under coverage, Sunway City gained 21.8% amid further traction in its REIT listing plan. Other notable gainers include YNH Property (+12.9%) and Sunrise (+8.0%). On major shareholding changes, Employees Provident Fund (EPF) acquired 2.4 million shares in SP Setia, Lembaga Tabung Haji and Dato' Dr. Yu Kuan Chon added 1 million and 0.5 million shares respectively in YNH Property, and Tong Kooi Ong added 0.2 million shares in Sunrise.
· Notable property news
Key highlight for the week was the injection of eight investment properties by Sunway City into its REIT which will be listed this year. Although the consideration is not determined yet, we estimate these assets to have an estimated value of RM2.9 billion, based on 6.5% cap rate, which will put SunCity’s proposed REIT to be the largest REIT in Malaysia upon listing.
Other notable news items for the week include Sunway Holdings taking a 65% stake in a joint venture to develop 16.9 acres leasehold land in Bukit Jalil into a RM120m residential project, and Dijaya Corp taking a 75% stake in a joint venture to develop a mixed property project worth US$174 million (RM559.7 million) in Mongolia. Besides these, SP Setia also plans to double its landbank in Penang from about 66ha currently and MRCB is eyeing land in Iskandar Malaysia through joint venture with land owners or other parties.
· 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. Although upside to our TP for Sunway City has narrowed to just 6% following the 21.8% gain last week, we see further upside as it is backed by RNAV of RM5.77, which is conservative. We will be reviewing our valuation of Sunway City in due course. On the other hand, Sunrise is severely undervalued despite its recent strong sales from its MK 28 project will continue to underpin earnings visibility. It offers 43% upside to our TP. Among non-rated property stocks, we also like Mah Sing.
