We are maintaining our “neutral” view on the property sector as the outlook remains challenging in the next 12 months.

While developers have achieved their new sales targets, the numbers were 10% to 15% lower in the first half of 2019 compared with those in the previous year. We are not expecting surprises in earnings for the next 12 months as properties are not fast-moving goods and the sector requires some time to recover.

The prolonged US-China trade tensions and a mounting global recession risk have triggered a selldown in global equity markets, including Malaysia’s. Moreover, the UK property market has weakened significantly as the Brexit uncertainty puts off buyers. We are raising the discount to restated net asset value by 5% to reflect the heightened risks. 

We are also extending the timing of recognition for projects in view of the slower market, particularly those in the UK due to the Brexit risk. We made no changes to our financial years 2019 to 2021 earnings forecasts, but with higher discounts and lengthening the timing of recognition, it leads to lower valuations and downgrades in recommendations.

Nevertheless, we expect certain segments to outperform in the current market condition. We believe developers with overseas exposure will do better in the medium term, especially in China and Singapore. Sunway with fair value (FV) of RM1.97 and IOI Properties Group Bhd (FV: RM1.73) are well-positioned in this area and their property launches have been generally well-received locally and overseas.