Property

KUALA LUMPUR: The Malaysian property sector is expected to continue growing with the number of potential infrastructure projects, active land transactions and an influx of investments in the pipeline, especially those revolving around green energy, data centres and the manufacturing sector. RHB Investment Bank (RHB IB) said developers with sizeable landbank and industrial segment exposure should see greater benefits from infrastructure developments and rising investment flows. “We expect the property sector to continue to be driven by positive news flow on potential infrastructure developments such as the Kuala Lumpur-Singapore high-speed rail (HSR), Johor Bahru light rail transit (LRT) and Penang LRT, active land transactions (particularly in Iskandar Malaysia) and the influx of foreign direct investments and expansion by local manufacturing players,“ it said, adding that pump priming across the Klang Valley, Iskandar Malaysia and Penang region should lift the sector’s overall valuation. The research house also noted that most developers – apart from UEM Sunrise Bhd, Sime Darby Property Bhd and SP Setia Bhd – are turning more optimistic with a 10-15 per cent higher sales target for the 2024 financial year (FY24). So far, the property sector has appreciated about 18 per cent year to date. “Although UEM Sunrise has set a lower sales target of only RM1 billion versus the RM2.1 billion achieved in FY23, we think the company may have something more exciting ahead, as its management has just revealed a revised masterplan for Gerbang Nusajaya, which saw a significantly higher proportion of industrial development,” the research house noted. According to RHB Research, aggregate property sales in the fourth quarter (Q4) of 2023 were flat year-on-year (YoY) and down by only 5 per cent quarter-on-quarter (QoQ) due to stronger sales in Q2 and Q3. On a full-year basis, it said that aggregate property sales rose 19 per cent YoY to RM19 billion versus RM16 billion in 2022. “IOI Property Group Bhd (IOIPG), Mah Sing Group Bhd and Sunway Group saw encouraging growth in property sales from the Johor region last year,” the report said. “This reaffirms our bullish view on the property sector. Demand is expected to pick up strongly as interest rates stabilise and economic growth improves, supported by favourable government policies, such as the easing requirements for Malaysia My Second Home programme and new infrastructure projects concentrated in Johor,” it said. RHB Research has maintained an ‘Overweight’ call on the property sector with top picks UEM Sunrise, IOIPG and Eastern & Oriental (E&O).

KUALA LUMPUR: Kimlun Corporation Bhd’s forward earnings trajectory is expected to improve after turning in poor FY23 earnings, backed by the gradual execution of its RM2.2 billion orderbook, the highest tally since listing. Hong Leong Investment Bank Bhd (HLIB Research) considers Kimlun’s replenishment targets conservative, considering multiple factors pointing to the upside. The bank-backed research firm said its record in Johor and Sarawak helps this end. HLIB Research said Kimlun’s post-sluggish FY23 with core profit after taxation and minority interests (PATAMI) of RM7.1 million, which was down 80.6 per cent year-on-year (YoY), the trajectory is expected to reverse in FY24. “Both construction and precast segments were transitioning between old and new projects. “We believe missing earnings expectations for three consecutive quarters (Q1-Q3 of 2023) resulted in it being a relative laggard among ‘Johor themed’ stocks. Going forward, Kimlun expects decent performance in FY24 before delivering numbers in FY25 – more reflective of its RM2.2 billion orderbook. “We gather that the RM780 million SSLR Lawas-Long Lopeng road project has reached a completion rate of about 25 per cent. With the site-clearing phase effectively completed, the project will move into the active execution phase. “We believe the successful execution of its current peak orderbook could serve as a treating catalyst,” HLIB Research said in a report. HLIB Research also noted that as of December 31, 2023, the unbilled orderbook stood at RM2.2 billion. This does not include the RM133.6 million contract for a landed residential project in Johor Bharu secured in January this year. Construction forms the bulk or orderbook at RM1.9 billion, while precast manufacturing is RM300 million. HLIB Research said that despite a lower proportion from manufacturing, the segment typically commands an average group profit margin that is 3x higher than that of construction. “We note that the RM2.2 billion orderbook tally matches Kimlun’s highest since listing, last achieved in FY18. “During its better days, the orderbook ranged between RM1.5 billion to RM2.2 billion while core PATAMI ranged between RM58.4 million to RM81.9 million,” HLIB Research said. The research firm noted that Kimlun is looking to expand its precast manufacturing capacity by 20-25 per cent and could deploy capital of RM40-RM50 million. The additional capacity in Ulu Choh, Johor, will come online in the third quarter (Q3) FY24. “We attribute this expansion to higher demand for industrialised building system (IBS) components, demand from data centres, impending infra upcycle in Singapore mass rapid transit (MRT) Cross Island Line (CRL) Phase 2 and 3, Changi T5, Tuas Ports and mega projects rollout in Malaysia. “While there will be associated start-up costs, the expansion is timely to ride on the coming infra upcycle in Johor and Singapore,” HLIB Research noted. The research firm has maintained a Buy call for Kimlun with a target price of RM1.38 a share, a reasonable range for a small-cap contractor. “We reckon FY25 earnings better captures earnings potential from its strong orderbook. “At current market valuation, Kimlun trades at near 50 per cent price-to-book (P/B) multiple discount to the KLCON Index consistent only with periods of sector down-cycle. “The company is a proxy to infrastructure rollouts in Malaysia and Singapore,” it said.