Kenanga Research downgrades Property sector to Neutral

KUALA LUMPUR: Kenanga Investment Research
is downgrading property developers to Neutral from Overweight on
potential worse-than-expected Budget 2013 risks and the closing general
elections timeline.
The research house said on Thursday that
first, high up on its list of fears are hikes in buyers stamp duties,
although it reckoned this measure is unlikely.
“We think RPGT
hikes are likelier, but this will have less physical impact on
developers as the heftiest hike tends to be during the first 2-3 years
holding period, that is during the construction period,” it said.
Kenanga
Research said notwithstanding, sentiment will still be affected and it
anticipates a near-term knee-jerk reaction on developers' share prices
in this scenario.
“Even then, we still expect the physical
market to continue in its current momentum given a liquid banking
sector and attractive rates. As it is, most developers are meeting
their sales target, except for UEM Land, which is another reason for our sector downgrade as we are cutting UEM Land recommendation,” it said.
The
research house said although it is bullish on Johor, there is a high
risk of UEM Land not meeting headline KPIs as it is now proportionately
behind its sales targets.
“Our sector downgrade involves us
re-basing most of our discount basis to widen our FD SoP RNAV discount
rates to reflect our near-term cautiousness, although it is worth to
note that on the positive side, most developers under our coverage are
already approaching their forward PBV trough levels.
“We are downgrading our ratings and TPs on UEM Land (MP; TP: RM1.85) and Hunza Properties (UP; TP: RM1.50). We are maintaining our ratings but trimming our TPs on IJMLAND (OP; TP: RM2.60), Crest Builder (OP; TP: RM1.34), SPSETIA (MP; TP: RM3.80) and MAHSING (MP; TP: RM2.40).
“Our
4Q12 Top Pick is UOA Development (OP; TP: RM2.30) because of its strong
net dividend yields of 7.6%-6.9% and its ability to meet its dividend
commitments,” said Kenanga Research.