Property Developers. By Sarah Lim l ; Adrian Ng l

Transcription

1 Property Developers Stay Selective, Switch Back to Big-caps By Sarah Lim l sarahlim@kenanga.com.my ; Adrian Ng l adrian.ng@kenanga.com.my NEUTRAL Maintain NEUTRAL on developers with a slight positive bias. Budget-2015 is expected to be NEUTRAL with some slight positives like DIBS for properties below RM400k/unit. Property stocks could potentially rally on the premise of a pre-gst demand rally, which hinges on banking liquidity which appears to be challenging currently. After a stunning performance by small-mid cap developers, we think large cap laggards are due for a relief rebound, especially if Budget-2015 is NEUTRAL as expected. We advice investors to be (i) selective in terms of picking affordable plays (e.g. MATRIX, HUAYANG) or under-researched property counters with deep values (ii) selective big-caps laggards with emphasis in Klang Valley (e.g. MAHSING, IOIPG). Our TOP PICK for the sector is KSL (TB; TP: RM6.63). Maintain NEUTRAL on developers with a slight positive bias. Current property cooling measures have been effective in curbing demand as transaction volumes remain soft while 2QCY14 House Price Index (HPI) indicates that price growth has levelled-off at 6.6% or at more sustainable levels. Hence, we expect Budget-2015 to be largely NEUTRAL (e.g. more PR1MA emphasis) although we could potentially see some slight positives like DIBS for properties below RM400k/unit; but this incentive only significantly benefits selective developers (e.g. MATRIX, HUAYANG, CRESNDO). However, as the market had widely anticipates this, property share price excitement may be slightly muted post Budget. Small-mid cap stocks dominated in 3QCY14 as investors chase for underresearched stocks while affordable plays remains a popular theme. Most large cap developers were sluggish save for IJMLAND and SUNWAY which saw M&A activities. Meanwhile, the sector is trading at historical average valuation level (e.g. RNAV discounts) which is suitable as sector dynamics are not in a bull-run mode. Industry news flow will be largely infrastructure related, although we reckon more concrete news will be felt in early 2015 rather than 4QCY14. Landbanking is also expected to remain relatively quiet. Too early to celebrate? Property stocks could potentially rally on the premise of a pre-gst demand rally, which hinges on banking liquidity. At this juncture, property lending has been challenging, as seen with lacklustre loan indicators. Our banking analysts expect the current lending momentum to remain till year-end and that banks may narrow lending spreads in the future due to unsustainable NIM compressions. This could dampen hopes of a pre-gst demand rally. Meanwhile, our economists anticipate another 25 bps hike in OPR by Nov-14. All these factors could lead to developers missing current year s sales targets or growth in next year s targets. Hence, we take the view that rallies in 4QCY14 may be short lived or selective. After a stunning performance by small-mid cap developers, we reckon that large cap laggards are due for a relief rebound since (i) many are trading below average valuation levels (ii) Budget-2015 is expected to be NEUTRAL as investors fears would have been abated. We advice investors to be (i) selective in terms of picking affordable plays (e.g. MATRIX, HUAYANG) or under-researched property counters with deep values (ii) selective big-caps laggards with emphasis in Klang Valley (e.g. MAHSING, IOIPG). Our TOP PICK for the sector is KSL (TRADING BUY; TP: RM6.63) as the stock is due for a re-rating given its: (i) undemanding valuations (ii) potential resumption of dividends or dividend policy (iii) potential bonus issue. PP7004/02/2013(031762) Page 1 of 21

2 KEY POINTS Previous Budget measures has been effective Transaction volumes still soft? Recall that 1QCY14 residential transacted volumes have slowed down to -1% YoY (compared to -10% YoY in 2013) but transacted values were higher with average residential transacted values have risen by 20% YoY to RM330k/unit. The government has yet to release the national statistics on property transactions for 2QCY14. Hence, we cannot conclusively say if 2QCY14 transactions have declined YoY. Given the tougher lending environment and data provided by REHDA Property Industry Survey 1H14, we dare hazard a guess that transaction volumes are still showing YoY declines, if not flattish growth. According to REHDA, primary market sales have fallen to a worrying 49% for 1H14 compared to it being above 50% typically. Clearly, Budget-2014 cooling measures have been effective in curbing speculation, but has it solved affordability issues? REHDA Property Industry Survey Sales Performance Source: Taken from The Edge Article Sales fall to worrying levels, says REHDA House price growth seen to be levelling off. To recap, JPPH statistics indicates that 1QCY14 HPI grew by 9.6% YoY which was slower than 2013 s average of 10.9% YoY growth and was the first time HPI growth was below 10% since 3Q11. It appears growth has slowed down further in 2QCY14 with HPI growing by 6.6% YoY (+0.9% QoQ) which is close to its 10- yr annual growth rate of 6.1%. We view this positively as it could imply less likelihood of more stringent property measures during the upcoming Budget-2015 announcement. Malaysia House Price Index (HPI): Malaysia, KL, Selangor, Penang, Johor Sep-00 House Price Index: Malaysia House Price Index: Selangor House Price Index: Pulau Pinang Source: JPPH, CEIC, Kenanga Research House Price Index: Kuala Lumpur House Price Index: Johor Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar % 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% YoY Chg: House Price Index: Malaysia Mar-01 Aug-01 Jan-02 Jun yr Average YoY Chg: House Price Index: Malaysia Nov-02 Apr-03 Sep-03 Feb-04 Jul-04 Dec-04 May-05 Oct-05 Mar-06 Aug-06 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 But has priced levelled off for the right reasons? iproperty Asia Property Market Sentiment Report for 2H14 indicates that 67% of their respondents (up from 57% in the previous survey) still feel that property prices are too high. Meanwhile, the media keeps highlighting affordability issues which indicate that while price growth may have slowed down, income levels have not been able to catch up with the run-up in property prices. We also observe that developers are launching smaller and smaller units to ensure lower absolute prices but maintain ASPs because of increasing replacement costs. 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% PP7004/02/2013(031762) Page 2 of 21

3 Areas like Selangor are still seeing relatively steeper price trends compared to other states as its 2QCY14 HPI growth was at 10.1% vs. its 10-yr average annual growth rate of 5.9%. This is not surprising given that it experienced the highest urbanization rates. Johor HPI growth rate was the worst amongst the key states with 4.6% in 2QCY14 vs. its 10-yr average annual growth rate of 5.6%, which is unsurprising given the negative sentiment in Johor. Malaysia House Price Index (HPI): YoY Trends: KL, Selangor, Penang, Johor 5.0% 25.0% 30.0% YoY Chg: House Price Index: Kuala Lumpur YoY Chg: House Price Index: Selangor 30.0% 0.0% 10-yr Average YoY Chg: House Price Index: Selangor 10-yr Average YoY Chg: House Price Index: KL 20.0% 25.0% YoY Chg: House Price Index: Johor 10-yr Average YoY Chg: House Price Index: P.Pinang YoY Chg: House Price Index: Pulau Pinang 10-yr Average YoY Chg: House Price Index: Johor 25.0% 20.0% 20.0% 5.0% 15.0% 15.0% 15.0% 0.0% 10.0% 10.0% 10.0% 5.0% 5.0% 5.0% 0.0% 5.0% 0.0% 0.0% -5.0% Mar-01 Aug-01 Jan-02 Jun-02 Nov-02 Apr-03 Sep-03 Feb-04 Jul-04 Dec-04 May-05 Oct-05 Mar-06 Aug-06 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb % -5.0% Mar-01 Aug-01 Jan-02 Jun-02 Nov-02 Apr-03 Sep-03 Feb-04 Jul-04 Dec-04 May-05 Oct-05 Mar-06 Aug-06 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb % -10.0% 5.0% -5.0% -15.0% -15.0% Source: JPPH, CEIC, Kenanga Research The irony of affordable housing. The group of buyers targeting affordable homes are typically young adults/families who are looking for their first homes and typically have a household income of between RM k/month. In urban areas like Klang Valley, a car is a necessity for most while credit card dependencies are increasing. So when these buyers apply for a housing loan, albeit the first home, they are often penalized by their income levels and existing credit facilities, resulting in a less than ideal margin of finance which increases the hurdle of buying a home. The irony is that higher-income level earners may find it easier to overcome this hurdle compared to those that really need homes. Budget-2015 Expectations Two parts to the price equation. We reckon that only one part of the equation has been solved during the last Budget announcement i.e. property speculation or demand pull inflation. The other part of the equation lies with the structural changes in our economy which includes cost push factors like subsidy rationalization (e.g. electricity, petrol) and impending GST. Hence, implementing more demand related measures will not solve the underlying issue regarding affordability. Affordability! Affordability! Affordability! A recurring theme. We reckon that the government will look for methods of increasing supply of affordable homes. Currently, we are seeing more active roll-outs of PR1MA housings. We reckon the challenge lies in areas like Klang Valley because of higher land costs compared to other states. It was reported in the media that the government is also looking to offer Rent-To-Own (RTO) schemes designed for potential PR1MA buyers who cannot afford upfront deposits or have been turned away by banks. Under the scheme, buyers will pay rent for 20 to 30 years and will eventually own these units. The government is working with banks to assist in the implementation. This is the right step forward by the government to increase supply of affordable homes and is a likely measure to be implemented during Budget Unfortunately, PR1MA projects do not significantly benefit developers under our coverage as these are mostly national service or are small in relation to their other projects. We would like to see more of these efforts in the Klang Valley. It may entail both the Federal and Selangor state governments to supply land for PR1MA housings as it will not be financially feasible to build these homes based on current land prices. Alternatively, the government may also consider housing grants for first home buyers, as seen in countries like Australia, as long as the home meets certain price and size criteria. However, this is a measure that has not been visibly considered by the government. Bring back DIBS for properties below RM400k/unit. Industry players are lobbying to bring back this measure. As mentioned earlier, first home owners are facing tougher home ownership hurdles and DIBS will be most helpful. We reckon there is a high probability of this incentive being implemented although it will likely be applicable to first home buyers only. If implemented, it will only benefit selective developers. We reckon HUAYANG and MATRIX are beneficiaries although they may have to downsize their products further. However, we note that HUAYANG did not extensively offered DIBS to its buyers during the DIBS days as they wanted to attract more serious owner occupier markets; we gather that if this measure is implemented, the group may use it sparingly. Even Johor based developers like KSL and CRESNDO, which targets the mass market and enjoys low land costs, may also benefit from this. For more sizeable developers, the impact may not be as significant as majority of projects are priced above RM500k/unit. 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4 Affordable housings priced below RM400k/unit should be zero rated under GST, as proposed by REHDA. In theory this would incentivise developers to launch more projects in this space due to better cost metrics and would be good for the sector in the longer run. However, it will present a lot of implementation challenges for developers. As it is, commercial/industrials are liable for GST, whilst residentials are tax exempt and developers are lamenting over the accounting and administrative changes and additional costs required to accommodate this; for example, integrated projects with residential and commercial components do share common infrastructure or facilities and under GST, they will need to apportion costs accordingly. If zero rated categories are introduced, we can only imagine that many developers will undergo an adjustment period. We believe there is a 50:50 chance of this measure being implemented. If it is implemented, our views are similar or slightly more positive than the above comments. REHDA has also expressed that it wants the government to forego stamp duty on property after the implementation of GST. According to REHDA, this may be viewed as double taxation. Other countries like Singapore which have implemented GST have not foregone stamp duties. Additionally, in the Malaysian context, stamp duties on properties are typically income streams for respective state governments, whereas GST is at a Federal level. Hence, we reckon this measure is unlikely. Expecting a largely NEUTRAL Budget We think Budget-2015 will likely be NEUTRAL given that HPI growth has levelled-off, which is a view held by the market. If Budget-2015 is truly NEUTRAL as predicted, will: (i) developers see the much anticipated stronger 2H14? (ii) developers share prices rally since it is expected? We reckon it depends on whether the banking liquidity to the sector will improve and if lending rates remain attractive. Potential Budget-2015 measures Potential Measure Affected States Positive, Negative or Neutral for developers under our coverage Fiscal Measures RPGT Hikes. Current levels are: 30% for properties sold within 3 years, 20% for properties sold on the 4th year, 15% for properties sold in the 5th year and no RPGT for properties sold in the 6th year onwards. Stamp Duty Hike based on number of properties owned: (i) 5% of purchase price for 3rd property; (ii) 7.5% for 4th property; (iii) 10% for 5th property and beyond. Stamp duty on higher property prices (e.g. above RM500k/unit) Forego property stamp duty upon GST implementation PR1MA / My First Home Scheme / Other government affordable housing schemes i.e. Rent to Own Automatic release of the unsold Bumiputra lots in tranches 10% release every six months from the launch Residential units priced below RM400k/unit OR RM500k/unit maybe classified as zero-rated instead of tax-exempt under the GST regime. BNM Measures Bring back DIBS for residential homes priced at or below RM400k/unit. We reckon the government is likely to ensure it will be only applicable for first home buyers, else it will be open to abuse by speculators. Lower LTV of 70% for 2nd property purchase (currently LTV of up to 90% of 2nd residential loans). Lower LTV of 60% for 3rd property purchase (currently LTV of 70% of 3rd residential loans) Source: Various, Kenanga Research Still expecting a pre-gst demand rally? Kenanga's view: Likelihood of Implementation All States Neutral to Negative Low All States Negative Low All States Negative Low All States Positive Low All States Neutral Likely All Positive Low All Positive 50:50 All Positive Likely All Negative Low All Negative Low Is a pre-gst demand rally In our past sector reports (refer to Property Sector Report 28/10/13), we had highlighted that countries that have implemented GST/VAT have seen a rally in big ticket items prior implementation date in anticipation of future price increases. Industry players are also expecting buyers sentiment to improve in 2H14. Developers have also been relatively quiet in terms of new launches in 1H14 as they wait-and-see as well, which could create a pent-up demand scenario in the near future. But it all depends if banks will loosen up liquidity to the sector. PP7004/02/2013(031762) Page 4 of 21

5 realistic? Maybe not as strong as we hope. In the last Budget-2014 announcement, we had seen a series of very severe property measures which we believe was implemented to neutralize hoarding of properties before GST is implemented. We think the mantra of a better 2H14 has been worn out. Currently, quite a number of developers are still behind schedule to meeting full year targets even though we are half way thru 2HCY14. It looks like developers are banking on an extremely strong 4QCY14. It leaves us asking ourselves if this is a realistic expectation given the following factors; (i) higher attrition rate of 30%-40% when bookings are converted to SPA sales (previously 10%-20%), not to mention longer conversion periods as buyers take longer to shop for loans given stricter lending requirements (ii) banks may consider lowering lending spreads while OPR rates may rise further. Lending situation may remain unchanged. In terms of residential loans applied, 7M14 cummulative data indicated an improvement of 8% YoY compared to negative YoY trends observed throughout 1HCY14. However, this could be attributed to: (i) buyers doing more shopping around for loans as it is tougher to get as high a margin of finance as compared to previous years, largely due to the transparency policy, (ii) more new launches were observed by developers under our coverage. However, 8M14 cummulative residential (non residential) loans applied worsen again to -5% YoY (-16% YoY), possibly due to buyers being more fearful of potential negative measures from Budget-2015 announcement. Banks are still quite tight on lending as we observe that loans approved for both residential (+2% Ytd-YoY) and non residential properties (- 4% Ytd-YoY) are still showing flattish to declining trends. Our banking analysts opines that the current lending trend is likely to persists until year end. From what we gather, the YoY decline in loans approval is reflective of (i) tighter regulations which are unlikely to be unwounded as household debt remains high and housing affordability still an issue (ii) concerns over asset quality given the higher cost of living, which will be further exarcerbated once GST is implemented 1 Apr If so, this may dampen hopes of a strong pre-gst demand rally in 4Q14 to 1Q15. Loans Applied: Residential & Non Residential Property Source: BNM, CEIC, Kenanga Research Loans Approved: Residential & Non Residential Property Source: BNM, CEIC, Kenanga Research PP7004/02/2013(031762) Page 5 of 21

6 YoY Changes in Annual Cumm. Loans Applied & Approved (Residential & Non Residential) Source: BNM, CEIC, Kenanga Research Lower lending spreads possible. AVL for Aug-2014 has inched up to 4.69% or slightly higher that CY13 s average of 4.62%. However, average BLR lending spreads is still attractive at -2.10ppt (CY13 average: -1.91ppt). However, this may change in the next few months. Our banking analysts indicated that some banks are considering to maintain or narrow their lending spreads as higher cost of funds are exerting pressure on NIM. This is contrary to our earlier hypothesis where we thought banks are likely to continue widening lending spreads to keep average lending rates (AVL) unchanged to drive loans growth. If so, this will not bode well for property demand. AVL, BLR, OPR and BLR Lending Spreads Source: BNM, CEIC, Kenanga Research Another 25bps hike in OPR possible. The recent MPC meeting left OPR rates unchanged at 3.25%. Our economists anticipates another 25 bps rise in OPR to 3.50% during the upcoming MPC meeting in Nov-14 i.e. a total of 50 bps hike for CY14. We believe this is still manageable. What we are concerned about is that there may be a series of hikes as opined by our Economists from observing BNM s historical trends, which may cause more buyers to continue their wait-and-see stance and more importantly, affect lending abilities. Our analysis indicates that if rates are hiked by more than 75bps, it will have a real negative impact on the sector s demand, particularly Klang Valley, as affordability will weaken to a 10-year high while existing borrowers will feel more significant impact. It will also increase developers costs, which will exacerbate affordability issues. Excerpts from our economist; Another hike possible. Despite the expectation of a pick up in aggregate demand in the 4Q14 as prices normalise, the 25 bps rise in the OPR may keep that pace somewhat subdued. If BNM uses the same modus operandi as they have in the past, we should be seeing another rate hike within 6 months. A mere 25 bps hike may be insufficient to have a meaningful impact in dealing with any financial imbalances. PP7004/02/2013(031762) Page 6 of 21

7 But highly dependant on economic situation. That being said, BNM Governor Tan Sri Zeti Akhtar Aziz did mention that any decision regarding the OPR hinges on growth rate and inflation but she remains mum on the specific details. Though the 1H14 GDP exceeded expectation, the 2H14 may end up below expectations due to slower global demand, and tapering domestic growth due to the earlier fiscal consolidation bleeding into the 2H14. On the other hand, inflation rate is expected to return to its long-term average of 3.0% (we are looking at 4Q14 inflation to be around 2.7% - 3.0%), giving little reason to increase the OPR under the justification of controlling inflation. Shouldn t delay. However, if BNM do choose to increase the OPR by another 25bps, they should do so as soon as possible to lessen the blow towards consumers and businesses, giving them breathing space between the rate hike and the implementation of the GST come April At the same time, this allows them to be ahead of the curve before the US Fed decides to increase the overnight rate (which we reckon may happen by the 2H15). Interest Rate Hike Impact on Mortgages Scenario No rate hike 25 bps rate hike 50 bps rate hike 100 bps rate hike House Price (RM) 500, , , ,000 Margin of Finance 90% 90% 90% 90% Mortgage tenure (yrs) BLR 6.53% 6.78% 7.03% 7.53% Bank Rate BLR - x% -2.00% -2.00% -2.00% -2.00% Lending Rate 4.53% 4.78% 5.03% 5.53% Monthly Instalment Payments (RM) 2,288 2,356 2,424 2,564 Changes in monthly instalment (RM) Changes in monthly instalment (%) 0% 3% 6% 12% Scenario No rate hike 25 bps rate hike 50 bps rate hike 100 bps rate hike House Price (RM) 1,000,000 1,000,000 1,000,000 1,000,000 Margin of Finance 90% 90% 90% 90% Mortgage tenure (yrs) BLR 6.53% 6.78% 7.03% 7.53% Bank Rate BLR - x% -2.00% -2.00% -2.00% -2.00% Lending Rate 4.53% 4.78% 5.03% 5.53% Monthly Instalment Payments (RM) 4,576 4,711 4,848 5,127 Changes in monthly instalment (RM) Changes in monthly instalment (%) 0% 3% 6% 12% Malaysia: Affordability: CY14 AVL unchanged Malaysia: Affordability: CY14 AVL up by 50bps Affordability Index (Mortgage/Income) 10-yr average Affordability Index (Mortgage/Income) 10-yr average <-- Improving (Affordability) Deteriorating --> yr average +1 SD 10-yr average -1 SD yr average +1 SD yr average yr average -1 SD F Source: JPPH, CEIC, Bloomberg, Kenanga Research <-- Improving (Affordability) Deteriorating --> 10-yr average +1 SD yr average -1 SD 10-yr average +1 SD 10-yr average 10-yr average -1 SD Klang Valley: Affordability: CY14 AVL unchanged Klang Valley: Affordability: CY14 AVL up by 75bps Affordability Index (Mortgage/Income) 10-yr average Affordability Index (Mortgage/Income) 10-yr average <-- Improving (Affordability) Deteriorating --> yr average +1 SD 10-yr average 10-yr average +1 SD 10-yr average -1 SD 10-yr average -1 SD F Source: JPPH, CEIC, Bloomberg, Kenanga Research <-- Improving (Affordability) Deteriorating --> yr average +1 SD 10-yr average -1 SD 10-yr average 10-yr average +1 SD 10-yr average -1 SD F PP7004/02/2013(031762) Page 7 of 21

8 POST MORTEM OF 3QCY14 Last results season were within to below expectations. Out of 13 property developers that we cover, 9 companies (CRESBLD, HUAYANG, IJMLAND, IOIPG, MAHSING, MATRIX, SUNWAY, TROP and MRCB) performed within or broadly within our expectations while the rest were below expectations. In terms of sales target, only 4 developers are on track to meet sales target (IJMLAND, MAHSING, SUNWAY and TROP), while SPSETIA was the only one that exceeded expectations. The others were behind schedules in terms of meeting sales targets target mainly due to the timing of property launches whereby most are skewed towards 2H14, or more specifically, post Budget-15. There were no discernible QoQ or YoY trends for developers, although it was evident that quarterly sales were either flattish to declining. For now, sales targets are achievable, although this largely hinges on what unfolds during the Budget-2015 announcement. In term of earnings adjustment, we either kept our forecasts either unchanged or revised lower. Earnings forecasts for UEMS and UOAD were lowered due to the above reasons, while we cut SPSETIA s earnings forecast due to higher MI and JCE losses. Mix news flow so far. There was a mixture of negative and positives news over the quarter; (i) UEMS revised down their sales target substantially while we lowered UOAD sales targets to be more conservative, while other developers are banking on meeting their full year sales numbers post Budget-2015 announcement, (ii) unexpected dividends declared by IOIPG, (iii) MAHSING buys two major landbanks (Seremban and Puchong), (iv) SUNWAY announces spin-off plans for its construction arm, and (v) issues in Johor which includes potential residential oversupply and large land reclamations (e.g. 5000ac Forest City). Small-mid cap developers dominated in 3QCY14, as expected. We had highlighted in our previous sector strategy report (Property Developers Taking a Breather, 3-Jul-14) that investors should (i) remain stock selective during 3QCY14 as it will be a ranged bound quarter for large developers (ii) focus on affordable housing plays, RNAV expansions or turnaround stories for trading plays. As predicted, many large cap developers were sluggish and traded range bound during 3QCY14 while more small-mid caps property stocks performed well. In terms of YTD returns, most big-cap developers (>RM3b mkt cap) under our coverage (e.g. UEMS, MAHSING, IOIPG, SPSETIA, UOADEV, TROP) underperformed the KLPRP Index (16% YTD returns), with the worst being UEMS (-21% YTD returns). Positive exceptions were (i) SUNWAY (TOP PICK for 3QCY14) due to their recent (Sep-2014) announcement of spinning-off their construction division (ii) IJMLAND due to the privatisation announcement in Jun In the small-mid cap space, MATRIX and HUAYANG (affordable housing players) reported YTD returns of 25%-43%. However, CRESNDO performance was poor with -12% YTD gains due to negative sentiment arising out of Johor. Market relooks at under research property counters, as the market reassess land values of these companies considering the sharp run-up in land prices over the last 5 years. Thus our Trading Ideas (e.g. KSL, GUOCOLAND, SBC, TITIJAYA, IBHD, MKLAND, IWC) did extremely well with YTD returns of 28%-104%. In terms of the share price returns over 3QCY14, similar trends were observed as the YTD returns. The exceptions that outperformed the KLPRP Index 8% return over 3QCY14 were: (i) SUNWAY due to the reasons mentioned above, (ii) IOIPG positively surprised the market by announcing final dividends (previously no dividends were expected). In the mid-cap space, MATRIX and HUAYANG (affordable housing players) saw returns of 15%-10% for the period, which also outperform the KLPRP. In terms of our Trading Ideas stocks like KSL, GUOCOLAND, TITIJAYA, IBHD, IWC did extremely well over 3QCY14 with returns of 10%-109%. Trading Idea stocks that did not beat the KLPRP performance for the period was MKLAND and SBC. YTD-CY14 Share Price Returns of Developers (>RM3b market cap) Share Price YTD Gain CY14 (>RM3b market cap) UEM SUNRISE BHD BERJAYA LAND BHD IGB CORPORATION BHD MAH SING GROUP BHD IOI PROPERTIES GROUP BHD UOA DEVELOPMENT BHD SP SETIA BHD Average KLPRP SUNWAY BHD IJM LAND BHD EASTERN & ORIENTAL BHD % 10.0 % % % % Source: Bloomberg, Kenanga Research 20.0 % 30.0 % 40.0 % 50.0 % 60.0 % 70.0 % PP7004/02/2013(031762) Page 8 of 21

9 YTD-CY14 Share Price Returns of Developers (<RM3b market cap) Share Price YTD Gain CY14 (<RM3b market cap) MAGNA PRIMA BHD MEDA INC BHD CRESCENDO CORPORATION BHD WING TAI MALAYSIA BHD HUNZA PROPERTIES BHD IBRACO BHD CREST BUILDER HOLDINGS BHD IVORY PROPERTIES GROUP BHD YTL LAND & DEVELOPMENT BHD GLOMAC BHD EKOVEST BHD KARAMBUNAI CORP BHD LBS BINA GROUP BHD TROPICANA CORP BHD PARAMOUNT CORP BHD COUNTRY HEIGHTS HOLDINGS BHD DAIMAN DEVELOPMENT BHD NOMAD GROUP BHD/THE SYMPHONY LIFE BHD KLPRP YNH PROPERTY BHD SCIENTEX BHD ECO WORLD DEVELOPMENT GROUP PLENITUDE BHD HUA YANG BHD SELANGOR PROPERTIES BERHAD TA GLOBAL BHD MK LAND HOLDINGS BHD A & M REALTY BHD FABER GROUP BHD Average ISKANDAR WATERFRONT CITY BHD MALTON BHD SELANGOR DREDGING BHD I-BHD ENCORP DUTALAND BHD MATRIX CONCEPTS HOLDINGS BHD SHL CONSOLIDATED BHD PJ DEVELOPMENT HOLDINGS BHD GLOBAL ORIENTAL BHD SUNSURIA BHD LAND & GENERAL BHD TAHPS GROUP BHD MKH BHD TITIJAYA LAND BHD TALAM TRANSFORM BHD TAMBUN INDAH LAND BHD SBC CORPORATION BHD GUOCOLAND MALAYSIA BHD OSK PROPERTY HOLDINGS BHD KSL HOLDINGS BHD SENTORIA GROUP BHD -40.0% -20.0% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% 140.0% Source: Bloomberg, Kenanga Research Share Price Returns of Developers over 3QCY14 (>RM3b market cap) Share Price Returns over 3QCY14 (>RM3b market cap) UEM SUNRISE BHD SP SETIA BHD IJM LAND BHD BERJAYA LAND BHD UOA DEVELOPMENT BHD Average IGB CORPORATION BHD MAH SING GROUP BHD KLPRP EASTERN & ORIENTAL BHD IOI PROPERTIES GROUP BHD SUNWAY BHD -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% Source: Bloomberg, Kenanga Research Share Price Returns of Developers over 3QCY14 (<RM3b market cap) Share Price Returns over 3QCY14 (<RM3b market cap) -40.0% -20.0% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% Source: Bloomberg, Kenanga Research MAGNA PRIMA BHD DAIMAN DEVELOPMENT BHD TAHPS GROUP BHD ECO WORLD DEVELOPMENT TROPICANA CORP BHD SELANGOR PROPERTIES BERHAD IBRACO BHD MEDA INC BHD KARAMBUNAI CORP BHD ENCORP FABER GROUP BHD A & M REALTY BHD MK LAND HOLDINGS BHD IVORY PROPERTIES GROUP BHD MKH BHD HUNZA PROPERTIES BHD WING TAI MALAYSIA BHD SBC CORPORATION BHD SUNSURIA BHD CRESCENDO CORPORATION BHD CREST BUILDER HOLDINGS BHD NOMAD GROUP BHD/THE COUNTRY HEIGHTS HOLDINGS BHD TA GLOBAL BHD LBS BINA GROUP BHD MALTON BHD PARAMOUNT CORP BHD YTL LAND & DEVELOPMENT BHD GLOBAL ORIENTAL BHD YNH PROPERTY BHD EKOVEST BHD SELANGOR DREDGING BHD KLPRP PLENITUDE BHD TAMBUN INDAH LAND BHD Average GLOMAC BHD TALAM TRANSFORM BHD I-BHD HUA YANG BHD SCIENTEX BHD MATRIX CONCEPTS HOLDINGS SYMPHONY LIFE BHD ISKANDAR WATERFRONT CITY BHD PJ DEVELOPMENT HOLDINGS BHD LAND & GENERAL BHD DUTALAND BHD SHL CONSOLIDATED BHD OSK PROPERTY HOLDINGS BHD GUOCOLAND MALAYSIA BHD TITIJAYA LAND BHD SENTORIA GROUP BHD KSL HOLDINGS BHD PP7004/02/2013(031762) Page 9 of 21

10 Valuations Trading at historical average levels, suitable for current market cycle. Under our coverage, average RNAV discount rates has widen slightly from 3 months ago to 42% from 40%, which is still considered at historical average levels. In terms of Fwd PER and Fwd PBV, developers (under our coverage) valuations remain at close to or at historical average levels or largely unchanged since last quarter. Popular affordable plays like HUAYANG, MATRIX and CRESNDO are seeing above historical average to peak valuations. Many larger cap developers are lagging behind in terms of valuations and/or share price performance (e.g. UEMS, SPSETIA, MAHSING, IOIPG). In general, we reckon that developers should trade at their respective average historical levels as sector dynamics are not in a bull-run mode. Historical RNAV Discounts Historical HIGH Discount to FD RNAV Historical Average Discount to FD RNAV (Jun 2009) Historical LOW Discount to FD RNAV (A) Discount to FD Price at Sector Report Publication (20/6/14) (B) Discount to FD Last price (19/9/14) Changes in FD RNAV discount rates between (A) and (B) Discount of Property RNAV levels based on TPs UEMSUNRISE -59% -46% -31% -54% -59% -5% -58% 1.93 MARKET PERFORM IOI Properties* -56% -54% -51% -56% -51% 4% -45% 3.10 OUTPERFORM SPSETIA -47% -38% -15% -46% -40% 6% -40% 3.30 MARKET PERFORM Sunway** -49% -36% -6% -32% -27% 5% -18% 3.87 OUTPERFORM IJMLAND -34% -22% -1% -11% -17% -6% -9% 3.55 ACCEPT OFFER MAHSING -47% -31% -10% -34% -47% -13% -33% 3.05 OUTPERFORM UOA -60% -45% -33% -44% -43% 1% -46% 2.00 MARKET PERFORM Tropicana -68% -60% -47% -60% -65% -5% -67% 1.28 MARKET PERFORM Matrix* -46% -34% -24% -29% -25% 4% -20% 3.48 OUTPERFORM Average (>RM1b mkt cap) -52% -41% -24% -39% -41% -1% New TPs CALL Crescendo -54% -47% -39% -49% -51% -2% -48% 2.95 OUTPERFORM Hua Yang -47% -33% -23% -25% -32% -7% -26% 2.60 OUTPERFORM Average (<RM1b mkt cap) -50% -40% -31% -37% -41% -4% Overall Average -52% -41% -25% -40% -42% -2% * May not be representative due to limited data ** For its property division, we have applied 30% discount to its FD RNAV, which results in an affective SoP discount of 18%. Fwd PER Fwd PER at last price Current PER Valuation Levels Fwd PER Fwd PER Fwd PER Std Dev Std Dev Std Dev Peak Average Trough Peak Trough UEMS Below Average SPSETIA Below Average SUNWAY Above average IJMLAND Below Average MAHSING Below Average UOA Above average TROPICANA Average MATRIX Near Peak CRESCENDO Above average HUAYANG Above average AVERAGE * IOIPG has been excluded due to insufficient data points Source: Bloomberg, Kenanga Research PP7004/02/2013(031762) Page 10 of 21

11 Fwd PBV Fwd PBV at last price Current PBV Valuation Levels Fwd PBV Fwd PBV Fwd PBV Std Dev Std Dev Std Dev Peak Average Trough Peak Trough UEMS Near trough SPSETIA Near trough SUNWAY Above Average IJMLAND Below Average MAHSING Below Average UOA Below Average TROPICANA Below Average MATRIX Near Peak CRESCEND O Above Average HUAYANG Above Average AVERAGE * IOIPG has been excluded due to insufficient data points Source: Bloomberg, Kenanga Research Outlook & Recommendations Industry newsflow. Our construction analysts expect more infrastructure related news in the next 3-6 months; examples are ETP projects namely RM25b KVMRT2, RM20b urban highways, RM27b Penang Integrated Transport Master Plan, RM30b KL-Singapore HSR, RM26b TRX Financial District. It also appears that KVMRT3 (Circle Line) will unlikely be announced so soon since KVMRT2 has yet to be awarded yet. The more impactful news to developers under our coverage are the KL- Singapore HSR, particularly for developers with exposure to KL, Seremban and Johor; but we think the magnitude of the project may require a longer period for feasibilty studies while economic impact of cross-border migrations are still being considered by both Singapore and Malaysia. Landbanking is expected to remain relatively quiet. The only developer under our coverage with active landbanking activities this year is MAHSING. Developers are finding landbanking challenging as land costs remains high while the demand still leans towards affordable housings. We expect current landbanking trends to continue till year end. Developers share price performance pre and post Budget announcements. In general, developers share price tends to show better performance three months after the date of Budget announcements based on our observations since 2008 where property measures announced were either neutral to negative. Note: The analysis is based on developers under our coverage. Pre and Post Budget Announcements vs. Developers Share Price Performances Actual Actual Actual Actual Actual Actual Announcement for Budget 2009 Budget 2010 Property Measures Neutral Slightly negative Budget announcement date Period (Date-Date) 29th Aug 2008 Period Returns of Developers Under our Coverage 1 Jun th Nov rd Oct 2009 Period Returns of Developers Under our Coverage 1 Jun rd Jan 2010 Budget 2011 Negative 15th Oct 2010 Period Returns of Developers Under our Coverage 1 Jun th Jan 2011 Budget 2012 Slightly negative 7th Oct 2011 Period Returns of Developers Under our Coverage 1 Jun th Jan 2012 Budget 2013 Slightly negative 28th Sept 2012 Period Returns of Developers Under our Coverage 1 Jun th Dec 2012 Budget 2014 Very negative 25th Oct 2013 Period Returns of Developers Under our Coverage 1 Jun th Jan 2014 Average Period Returns of Developer s Under our Coverage 1st June to Budget -15.5% 22.0% 21.9% -13.0% 2.3% -11.0% 1.1% announcement date 1 mth after budget -9.0% -3.8% 1.9% 12.4% 12.4% -6.7% 1.2% announcement date 2 mth after budget -4.2% -3.4% 3.0% -3.8% -3.8% 0.9% -1.9% announcement date 3 mth after budget announcement date 7.2% 9.3% 11.7% 4.4% 4.4% -2.4% 5.8% Source: Various, Bloomberg, Kenanga Research (Refer to Appendix for Share Price Charts) PP7004/02/2013(031762) Page 11 of 21

12 Maintain NEUTRAL. Property stocks could potentially rally post Budget-2015 announcement on the premise of a pre-gst demand rally, particularly if Budget-2015 is NEUTRAL. The market expects Budget-2015 to be largely NEUTRAL with slight positives (e.g. DIBS for properties below RM400k/unit). So if it pans out as anticipated, will the market be excited i.e. will property stocks rally strongly? Also, a pre-gst demand rally hinges on a banking liquidity, which is not at its best currently, while our banking analysts believe this trend will persist till year end. All these factors could lead to developers missing current year s sales targets or growth in next year s targets. So is it too early to celebrate? Hence, we take the view that any stock rally in 4QCY14 may be short-lived or selective. It is evident that the property sector is not in a bull-run mode, and thus, our average sector valuations are looking quite comfortable at historical average levels. So, we have maintained most of our CALL/TPs, save for the following: (i) maintain CALLs but trim TPs for UEMS and CRESNDO due to the increasing worries arising from Johor (ii) maintain CALL but upped TP for IOIPG as earnings dissapointments are in the past, has commence dividend payouts, is a big-cap laggard implying a higher chance of rebounds by year end given its exposures to townships and landed residentials. Our CALLs/TPs are as followed (Refer to Appendix for details); (i) OUTPERFORM: IOIPG (TP: RM3.10), SUNWAY (TP: RM3.87), MAHSING (TP: RM3.05), MATRIX (TP: RM3.48), HUAYANG (TP: RM2.60), CRESNDO (TP: RM2.95). (ii) ACCEPT OFFER: IJMLAND (TP: RM3.55) (iii) MARKET PERFORM: UEMS (TP: RM1.93), SPSETIA (TP: RM3.30), UOADEV (TP: RM2.00), TROP (TP: RM1.28) Be selective. Switch to big-caps. After a stunning performance by small-mid cap developers, we reckon that large cap laggards are due for a rebound since (i) many are trading below average valuation levels (ii) Budget-2015 is expected to be NEUTRAL as investors fears would have been abated. In 4QCY14, the following big-caps is expected to perform; (i) IOIPG and MAHSING to see strong rebounds being major sector laggards with strong exposures in the Klang Valley. (ii) SUNWAY could benefit from from more news flow regarding spinning-off its construction unit as valuations or new potential jobs has not been made known yet. (iii) IJMLAND will also be in focus as the group aims to hold the RGM before Dec-14 in relation to the privatisation; note there is arbitrage opportunities to enter into IJMCORP at cheaper levels; if IJMC/IJML = 1.88x, there is no arbitrage opportunities; (i) if the ratio is above 1.88x, investors will find cheaper entry levels into IJMCORP by buying IJMLAND (ii) if the ratio is below 1.88x, investors will be better off buying into IJMCORP directly. Affordable plays are here to stay. We continue to like MATRIX and HUAYANG and expect these stocks to continue trading at premium valuations while they may experience share price excitement on the expectations of landbanking (already built-in GDV replenishments into our RNAVs). We may review our valuations with an upside bias post Budget-2015 announcement. Under-researched property counters may still have legs. There are some 100 property companies in the KLPRP index, not to mention that many other industries (e.g. contractors, manufacturers, etc) are venturing into the property space. Since the market is still hungry for ideas, we reckon that under-researched or under institutionalized stocks may still be of interests. We would not be surprised to see more M&A plays in this space too. On Our Radar Stocks with an Open Position Company CALL TP (RM) RNAV Discount to RNAV GOB Trading Buy % SBC Trading Buy % GLOMAC Trading Buy % TITIJAYA Trading Buy % GUOCO Trading Buy % IWCITY Trading Buy % KSL Trading Buy % MKLAND Trading Buy % Source: Various, Bloomberg, Kenanga Research Our TOP PICK for 4QCY14 is KSL. The stock was featured in our On The Radar report (21st August 2014) with a TRADING BUY recommendation with a FV of RM6.63 based on 50% discount to our FD RNAV of RM KSL is due for a re-rating after resurfacing back into the market while investors are anticipating more goodies which may include: (i) potential resumption of dividends, (ii) a dividend policy which we think will likely be at 30% payout of core PATAMI, and (iii) sufficient retained earnings to support at least 2 rounds of 1-for-1 bonus issue. Although KSL s landbanks are mostly in Johor, they enjoy extremely low land costs and are opting for a competitive pricing strategy to grab market share in the mass market space. Thus, they have actually chalked up more sales YTD compared to large developers like UEMS. Even though its share price has shot up by 120%, there is still ample upsides as our FV implies FY14-15E core PER of 8.5x-6.8x which is still comparable with mid-cap peer averages of 8.4x-7.9x. We also like to remind investors that KSL (mkt cap: RM1.9b) FY14-15E core profit base is currently almost comparable to MAHSING, UOA and IJMLAND which have market caps of RM b. PP7004/02/2013(031762) Page 12 of 21

13 KSL Financial Summary FYE 31Dec (RM'm) Revenue EBIT Finance Cost Associates PBT Taxation MI PATAMI CORE PATAMI EBIT Margins 45.6% 43.3% 37.6% 41.6% 33.0% PBT Margins 41.2% 42.9% 37.6% 40.8% 32.5% PATAMI Margins 29.8% 31.7% 26.7% 30.6% 24.4% Revenue YoY 53.1% 48.0% 68.8% 44.9% 56.5% EBIT YoY 48.7% 40.7% 46.4% 60.2% 24.1% PBT YoY -31.7% 54.2% 47.6% 57.3% 24.8% PATAMI YoY -33.2% 57.3% 42.0% 66.0% 24.8% Core EPS (sen) PER (x) DPS (sen) Div Yield * 0.0% 0.0% 0.0% 5.1% 6.4% BV/sh (RM) PBV (x) NTA/sh (RM) PNTA (x) Net Gearing / (Cash) (x) ROE % 8.8% 12.2% 15.2% 23.3% 23.2% ROA % 6.1% 8.4% 10.6% 16.6% 17.1% * Note: In our previous OR report (21 Aug 2014) on KSL, we estimated 20% payout of core PATAMI. However, we have adjusted it to 30% payout for this sector report. Risk to our sector call. Upside risks includes: (i) strong positive measures including allowing DIBS for first home buyers for any house price levels, (ii) relaxation in lending requirements or improved banking liquidity in 4QCY14 compared to the first 7 months of CY14, and (iii) lowering of RPGTs. Downside risks includes: (i) lower LTVs on 2nd and/or 3rd residential purchases, (ii) sharp interest rate hikes beyond expectations, and (iii) economic slowdowns. PP7004/02/2013(031762) Page 13 of 21

14 APPENDIX Developers Share Price Performance Pre & Post Budget Announcement RM Budget 2009 Measures during Budget: RM250,000 be given a 50% stamp duty exemption. Nov 08: FIC approval waived for commercial properties >RM500k.. UEM SUNRISE BHD IOI PROPERTIES GROUP BHD SP SETIA BHD IJM LAND BHD SUNWAY BHD RM Budget 2010 Measures during Budget: (i) RPGT of 5% introduced after budget (ii) My First Home Scheme: individual RM3,000 with house price limit increased to RM350,000 (for joint husband/wife income too). Jan 10-5% RPGT for Properties held for less than 5 years becomes effective. UEM SUNRISE BHD IOI PROPERTIES GROUP BHD SP SETIA BHD IJM LAND BHD SUNWAY BHD MAH SING GROUP BHD MAH SING GROUP BHD 1.00 UOA DEVELOPMENT BHD MATRIX CONCEPTS HOLDINGS BHD 1.00 UOA DEVELOPMENT BHD MATRIX CONCEPTS HOLDINGS BHD TROPICANA CORP BHD TROPICANA CORP BHD 0.50 CRESCENDO CORPORATION BHD HUA YANG BHD 0.50 CRESCENDO CORPORATION BHD HUA YANG BHD Jun Budget 1 month after 2 month after 3 month after Announcement Budget 2009 Budget 2009 Budget 2009 date (29th Aug 2008) Source: Various, Bloomberg, Kenanga Research Jun Budget Announcement date (23rd Oct 2009) 1 month after Budget month after Budget month after Budget 2010 Developers Share Price Performance Pre & Post Budget Announcement RM Budget Measures during Budget: 50% stamp duty exemptions for 4.50 instruments of transfer and loan agreements for homes less than 4.00 RM350,000 (instead of RM250,000) Nov 10 - LTV cap of 70% for 3rd property purchase UEM SUNRISE BHD IOI PROPERTIES GROUP BHD SP SETIA BHD IJM LAND BHD SUNWAY BHD MAH SING GROUP BHD UOA DEVELOPMENT BHD MATRIX CONCEPTS HOLDINGS BHD TROPICANA CORP BHD CRESCENDO CORPORATION BHD HUA YANG BHD RM Jul 11: PR1MA Scheme Measures during Budget: RPGT rate revised to 10% for properties disposed within 2 years and 5% for properties disposed within 2-5 years Budget 2012 UEM SUNRISE BHD IOI PROPERTIES GROUP BHD SP SETIA BHD IJM LAND BHD SUNWAY BHD MAH SING GROUP BHD UOA DEVELOPMENT BHD MATRIX CONCEPTS HOLDINGS BHD TROPICANA CORP BHD CRESCENDO CORPORATION BHD HUA YANG BHD Jun Budget 1 month after 2 month after 3 month after Announcement Budget 2011 Budget 2011 Budget 2011 date (15th Oct 2010) Source: Various, Bloomberg, Kenanga Research Jun Budget Announcement date (7th Oct 2011) 1 month after Budget month after Budget month after Budget 2012 Developers Share Price Performance Pre & Post Budget Announcement Budget th June 2013: Rumours of BNM re-looking the DIBS scheme Jul 13: BNM reduces loan period for property buyers from 45 years to 35 years. Budget 2014 RM Measures during Budget: RPGT rate revised to 15% (from 10%) for properties disposed within 2 years and 10% (from 5%) for properties disposed within 3-5 years. After 5 years there is no RPGT (ii) BTS incentives. (iii) Better PR1MA and My First Home Scheme ceiling prices/incentives. UEM SUNRISE BHD IOI PROPERTIES GROUP BHD SP SETIA BHD IJM LAND BHD SUNWAY BHD MAH SING GROUP BHD RM UEM SUNRISE BHD IOI PROPERTIES GROUP BHD SP SETIA BHD IJM LAND BHD SUNWAY BHD MAH SING GROUP BHD Jun Budget 1 month after 2 month after 3 month after Announcement Budget 2013 Budget 2013 Budget 2013 date (28th Sept 2012) Source: Various, Bloomberg, Kenanga Research UOA DEVELOPMENT BHD MATRIX CONCEPTS HOLDINGS BHD TROPICANA CORP BHD CRESCENDO CORPORATION BHD HUA YANG BHD UOA DEVELOPMENT BHD 8 Oct 2013 : Proposed 4%-5% tax on sales price MATRIX CONCEPTS HOLDINGS BHD for foreigners for Johor properties Measures during Budget:(i) RPGT hike TROPICANA CORP BHD (citizens): 30% for 1st 3 years, 20% for 4th year, CRESCENDO CORPORATION BHD 15% for 5th year.companies are taxed at 5%. (ii) HUA YANG BHD RPGT hike (non-citizens): 30% for properties held up to 5 years. (iii) Raise floor prices to RM1m/unit from current RM500k/unit for foreign buyers (iv) Cease DIBS 1-Jun Budget 1 month after 2 month after 3 month after Announcement Budget 2013 Budget 2013 Budget 2013 date (25th Oct 2013) PP7004/02/2013(031762) Page 14 of 21

15 Changes in CALL/TPs (Part 1 of 2) Developers Last Price 19/9/14 New Call New TP (RM) Valuation (Discount to PROPERTY RNAV) Valuation (Discount to SoP) New FD SoP RNAV (RM) Quantum of TP revision Call Action Previous TP (RM) Previous Discount to FD SoP RNAV Previous Discount to SoP Previous FD SoP RNAV (RM) Previous Call (RM) UEM Sunrise 1.87 MP % -58% % Maintain % -55% 4.56 MP IOI Properties 2.73 OP % -45% % Maintain % -50% 5.60 OP SP Setia 3.27 MP % -40% % Maintain % -40% 5.46 MP Sunway 3.36 OP % -18% % Maintain % -18% 4.74 OP Berhad IJM Land 3.23 AO % -9% % Maintain % -9% 3.89 AO Mah Sing 2.42 OP % -33% % Maintain % -33% 4.58 OP Group UOA 2.09 MP % -46% % Maintain % -46% 3.69 MP Development Tropicana 1.36 MP % -67% % Maintain % -64% 3.89 MP Matrix 3.25 OP % -20% % Maintain % -20% 4.35 OP Concepts Crescendo 2.81 OP % -48% % Maintain % -45% 5.72 OP Hua Yang 2.40 OP % -26% % Maintain % -26% 3.52 OP Source: Bloomberg, Kenanga Research PP7004/02/2013(031762) Page 15 of 21

16 Changes in CALL/TPs (Part 2 of 2) Developers Comments UEM Sunrise IOI Properties SP Setia Sunway Berhad IJM Land Mah Sing Group UOA Development Tropicana Matrix Concepts Crescendo Hua Yang Lower TP but maintain CALL. We applied a wider RNAV discount to 58% (close to its historical high discount rate) because: (i) sales are significantly behind their revised schedule, (ii) coming earnings are likely to trend down due to current year's high base effect from land sale recognitions, (iii) the Johor issue has taken a more significant toll on UEMS as their products tend to be targeted at foreigners or higher end markets. As a result, the new CEO has also mentioned that they may be looking at land swap deals to divest their investments outside of Johor. Nonetheless, at current high RNAV discount levels, we reckon the stock is heavily bombed out, limiting further downside risks. We will review our CALL/TP as catalysts emrge or group direction s unfold. Maintain CALL with higher TP. We narrowed our RNAV discount rate to 45% from 50% because (i) the group has surprised the market with final dividends and the market is expecting such dividend levels to be repeated next year and (ii) further earnings disappointments unlikely as the market has lowered its earnings several times in previous quarters. The stock is a big-cap laggard and has a higher chance of rebounds by year end given its exposures to townships and landed residentials. Maintain CALL/TP. Currently, the stock price is not reflective of its market value due to uncertainties regarding its long-term leadership plans. We recommend investors take a TRADING BUY stance on the stock as it could benefit from potential M&A activities relating to SIME DARBY or PNB. We will review our CALL/TP pending further information on this matter. No changes CALL/TP. We had recently revised up our TP post their announcement to spin-off their construction arm. We believe the stock will re-rate post the spin-off as the stock has suffered from the 'holding company' discount effect. No changes to CALL/TP. The group hopes to hold the EGM before Dec-14 regarding the privatization share scheme of arrangement and hopes to complete the exercise by 1HCY15. We expect a smooth privatization process as the market has generally advocated an Accept Offer recommendation. Note there is arbitrage opportunities to enter into IJMCORP at cheaper levels; if IJMC/IJML = 1.88x, there is no arbitrage opportunities; (i) if the ratio is above 1.88x, investors will find cheaper entry levels into IJMCORP by buying IJMLAND (ii) if the ratio is below 1.88x, investors will be better off buying into IJMCORP directly. No changes to CALL/TP. Applied RNAV discount is inline with our sector average. The stock is the only developer under our coverage who has consistently met expectations in terms of sales and earnings. Fwd PERs are also at trough levels while the stock. Additionally, the group has replenished more township/mass housing landbanks. We would apply a lower RNAV discount rate if we had more clarity on their FY15 sales targets as MAHSING's sales are currently one of the highest base for Malaysia only. For now, we prefer to keep their RNAV discount levels on par with our sector average. No changes to CALL/TP. We are comfortable with our TP as it implies 7.0% net dividend yield, which offers sufficient 1.0 ppt spread to sizeable MREIT average yields of 6.0%. We advice investors to accumulate the stock closer to our TP for yield plays. Lower TP but maintain CALL. We have applied a wider RNAV discount of 67% (from 64%) due to (i) risk exposures in Johor, (ii) larger higher-end high-rise components in their launches, and (iii) possible delay in the conclusion of the ECOWLD deal, which may affect FY14E earnings. Its applied RNAV discount rate is close to its historical high levels. News flow for the stock is expected to be quiet for 3Q14. Investors are also concerned that development profits are still thin vs. its land sale profits. No changes to CALL/TP. Affordable plays will remain in vogue for the next 12 months. We also expect the group to increase its landbanks in Seremban and have already factored in GDV replenishments of RM1.8b for the next 12 months. We may consider narrowing our RNAV discount rate if Budget-2015 announcement brings back DIBS for properties below RM400k/unit. Lower TP but maintain CALL. We widen our RNAV discount to below its historical average levels. Although the stock targets mass housing markets and industrials in Johor, which should be fairly resilient, we note that investors may view this stock as a yield play. At our revised TP, dividend yields are at 5.1% which is still attractive vis-àvis small-mid cap developer's average of 4.4%. No changes to CALL/TP. Affordable plays will remain in vogue for the next 12 months. We also expect the group to increase its landbanks and have already factored in GDV replenishments of RM1.6b for the next 12 months. We may consider narrowing our RNAV discount rate if Budget-2015 announcement brings back DIBS for properties below RM400k/unit. However, we prefer if the group undertakes an equity raising option to finance its future landbanking plans instead of over stretching its balance sheet. PP7004/02/2013(031762) Page 16 of 21

17 NAME Price (19/09/14) Mkt Cap PER (x) Est. NDiv. Yld. Historical ROE P/BV Net Profit (RMm) FY13/14 NP Growth FY14/15 NP Growth Target Price Rating (RM) (RMm) FY13/14 FY14/15 FY15/16 (%) (%) (x) FY13/14 FY14/15 FY15/16 (%) (%) (RM) DEVELOPERS UNDER COVERAGE UEM Sunrise* , % 10.2% % -26.3% 1.93 MARKET PERFORM IOI Properties* % 4.3% % 6.6% 3.10 OUTPERFORM SP Setia* , % 8.7% % 55.1% 3.30 MARKET PERFORM Sunway Berhad % 33.6% % 6.0% 3.87 OUTPERFORM IJM Land* , % 17.7% % 8.7% 3.55 ACCEPT OFFER Mah Sing Group , % 17.6% % 15.2% 3.05 OUTPERFORM UOA Development* , % 16.0% % 19.7% 2.00 MARKET PERFORM Tropicana , % 15.3% % -11.1% 1.28 MARKET PERFORM Matrix Concepts , % 29.8% % 13.8% 3.48 OUTPERFORM Crescendo* % 18.4% % 10.5% 2.95 OUTPERFORM Hua Yang % 22.8% % 10.5% 2.60 OUTPERFORM * Core NP and Core PER ** Crescendo per share data is based on non-fully Diluted CONSENSUS NUMBERS BERJAYA LAND BHD , n.a. n.a. n.a. 1.9% n.a. n.a. n.a. n.a NEUTRAL IGB CORPORATION BHD , % 5.3% % 5.9% 3.14 NEUTRAL YNH PROPERTY BHD % 5.7% % 9.1% 2.22 NEUTRAL YTL LAND & DEVELOPMENT BHD n.a n.a. 3.2% n.a n.a. n.a. n.a. BUY GLOMAC BHD % 12.9% % 13.0% 1.23 BUY KSL HOLDINGS BHD , % 14.9% % -14.1% n.a. BUY PARAMOUNT CORP BHD % 9.1% % 0.0% 1.76 BUY IVORY PROPERTIES GROUP BHD n.a. n.a. n.a. 1.5% n.a. n.a. n.a. n.a. n.a. BUY TAMBUN INDAH LAND BHD , % 30.3% % 21.0% 2.78 BUY PP7004/02/2013(031762) Page 17 of 21

18 DEVELOPERS FWD PBV Fwd PBV: UEM Sunrise Fwd PBV: SP Setia Fwd PBV: Sunway Bhd Fwd PBV: IJM Land Fwd PBV: Mah Sing Fwd PBV: UOA Development Fwd PBV: Matrix Concepts Fwd PBV: Tropicana Corporation PP7004/02/2013(031762) Page 18 of 21