Make Hay While the Sun Shines

Transcription

1 Property Developers Make Hay While the Sun Shines By Sarah Lim l sarahlim@kenanga.com.my ; Adrian Ng l adrian.ng@kenanga.com.my UNDERWEIGHT We are downgrading PROPERTY to UNDERWEIGHT from NEUTRAL. We believe the recent exuberance in property stocks was largely based on expectations of positive monetary measures from the new BNM governor and on bottomed-out valuations. However, we take a cautious view as the sector is going through structural adjustments, i.e. issues beyond demand-supply, but rather an industry dynamics issue extending into the banking system. There is no easy monetary solution in sight and measures like DIBS for first-time home buyers may not impact developers sales meaningfully due to the current rebates/easyfinancing schemes in place but may present more future risks for the banking system. While affordable housing remains a theme, it can be a negative to most developers group margins, especially those which are not traditional affordable housing developers; ironically, targeting such markets means such pool of buyers is also facing one of the highest loan rejection rates, as observed by REHDA s recent survey. Notably, CY15 Malaysia Residential Transacted Values (MRTV), used as our developer s sales proxy, declined by 10% YoY or the first time in 10 years and we predict a weaker CY16 MRTV (-2% YoY). For our universe, average developers sales growth for FY16E is -9% (FY15: -20%); however, if 40%-50% of launches do not take by mid-2016, expect developers sales targets to be trimmed, meaning that earnings risks still remain. Industry players expect a stronger 2H16, implying that the banking system s loans growth needs to move in tandem; our view on banking sector remains NEUTRAL and expect loans growth to be weak. Developers earnings cycle has weakened for FY16-17E, implying that valuations may remain compressed. Average RNAV discounts are now at 53% or slightly below its historical average of 49% or Global Financial Crisis peak levels of 64%. So, can we truly say that property valuations have bottomed if there are still earnings risks in the near horizon? At this juncture, we see no real reason to change our valuations (mostly at -1.0SD to historical average). As a result of the recent property stocks rally, we downgrade UEMS, IOIPG and KSL to UNDERPERFORM while our previous preferred pick UOADEV is now a MARKET PERFORM (other recommendations are largely unchanged). For investors who have positions or have recently jumped onto the bandwagon of positive property measures, we advise investors to top slice while sentiment is positive. For investors who have not taken position in developers, we strongly suggest avoiding the sector for now. We will reassess our sector call again once we have confirmation that key launches from our universe of developers have taken place and that take-up rates are expediting. Reasons the market is drumming-up for property stocks. The broad market has been rebounding on the back of a strengthening Ringgit while economic outlook appears to have stabilized. Developers, being a traditionally high-beta sector, are viewed to be a natural proxy to the economy. We note that the market is looking at bottom-fishing opportunities on a hypothesis that the sector is trading at bombed-out valuations. It also appears the market is thinning out on investment ideas; hence, the plays for market laggards or bombed-out sectors, which naturally points towards the Property sector. There are even talks that the new Bank Negara Malaysia (BNM) Governor could introduce new measures to revive the market (e.g. DIBS for first-time home owners, reassessment on LTV methods). Hold your horses!!! However, fundamental data is revealing that the sector may be undergoing a structural change which may change the traditional property cycle altogether. Also, can we truly say that developer s valuations have truly bottomedout if there are still earnings risks? Easing monetary policies, wishful or realistic? With the changing of guards at BNM, investors expect the new BNM governor to introduce measures to boost the property sector within the first 6-9 months of his/her new office. REHDA and other property developers continue to campaign to bring back DIBS for first-time home owners; if introduced it will buoy sales for affordable housing developers (e.g. HUAYANG, MATRIX, KSL) while larger township developers (e.g. ECOWLD, SPSETIA, MAHSING, IOIPG) are expected to release more of such products. However, it appears there are a lot of concerns on whether it will be a strain on the banking system s future asset quality or if it will cause more default rates down the road if these loan applicants do not have the right credit standing to start off with. We also think the main obstacle lie with the barriers of entry where first-time home buyers without sufficient credit standing are given lower margin of finance. As it is we are seeing a wide amount of rebates and various financing schemes to aid developers; it also means the introduction of DIBS for first-time home owners may not be as impactful to the sector. Another possible monetary measure is increasing the 70% LTV cap on third home purchases onwards; but we think this is unlikely as it means that the policy is targeted at investors rather than addressing home affordability issues. We believe BNM will face challenges balancing between the longer-term health of the banking system and asset qualities vs. loans growth, i.e. no easy monetary solution in sight. PP7004/02/2013(031762) Page 1 of 20

2 Structural rather than a demand-supply issue. Overall, the banking system is going through an era of slowing loans growth. According to our banking analyst, the banking system Loans-To-Deposit Ratio (LDR) has hit another high of 87% at Jan-16, indicating that lending liquidity may remain tight even in the event of a lower interest rate (refer to APPENDIX for lending rate trends). Both Residential (Non-Residential) Loans Applied and Approved continues to deteriorate at -6% YoY and -34% YoY (- 22% YoY and -44% YoY), respectively, for Jan Meanwhile while banks are still lending, they are clearly limiting property exposure as the ratio of Property Loans Approved to Total Banking System Loans Approved has dropped to 31% in Jan-2016 or back to Global Financial Crisis (GFC) levels. Unlike the strong rebound in the property market observed post the GFC, the sector is now in a different era where tight lending liquidity persists on the back of high LDRs while house prices are much higher than it was five years ago. Monthly LDR Annual LDR vs. Malaysia Residential Transacted Values 1,800, % 90, % 1,600, % 80, % 1,400,000 1,200,000 1,000, , , % 82.0% 80.0% 78.0% Total Deposits (RM'm) Total Loans (RM'm) Loan to Deposit Ratio 70,000 60,000 50,000 40,000 30,000 20, % 90.0% 85.0% 80.0% 75.0% 70.0% 400, % 10, % 200, % % % Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 TOTAL Residential Sales (RM'm) LDR (%) Source: CEIC, BNM, Kenanga Research YoY Changes in Annual Cumm. Loans Applied & Approved (Residential & Non Residential) ANNUAL CUMM: Loans Applied: BS: PP: Purchase of Residential Property - YoY Change ANNUAL CUMM: Loans Applied: BS: PP: Purchase of Non Residential Property - YoY Change ANNUAL CUMM: Loans Approved: BS: PP: Purchase of Residential Property - YoY Chg ANNUAL CUMM: Loans Approved: BS: PP: Purchase of Non Residential Property - YoY Chg 1600 KLPRP Index 120% 1600 KLPRP Index 200% KLPRP Index % 80% 60% 40% 20% 0% -20% -40% YoY Change in Cumm. Loans Approved/Applied KLPRP Index % 100% 50% 0% -50% YoY Change in Cumm. Loans Approved/Applied 0-60% 0-100% Source: BNM, CEIC, Kenanga Research Property Loans Approved vs. Applied Property Loans vs. Banking System Loans Approved Annual Average: Ratio of Property Loans Approved vs. Applied Annual Average: Property loans approved to Total Banking System loans approved 70% 60% 50% 40% 30% 20% 10% 0% CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 YTD-CY16 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 YTD-CY16 Source: BNM, CEIC, Kenanga Research Buyers still and will be spoilt for choices, assuming loans can be secured. It appears that we can expect more incoming supply based on Incoming Supply trends while Malaysia Residential Property Absorption Rate (Incoming Supply as % of Demand) has deteriorated to pre-2007 levels (see charts below). A lot of the supplies of properties sold under the DIBS schemes during are seeing deliveries this year while the overall market from both sale and rental front is soft. Additionally, NAPIC has recorded declining primary residential sales performances of 41.4% in 2015 vs. 45.4% in 2014 (10-year average: 45.0%), which could suggest that buyers are turning towards the secondary market, which does not bode well for developers. Developers will have to work harder in terms of concept offerings, incentives and ultimately the right pricing at the right location, and we expect listed and/or reputable developers to fight for market share in a shrinking pie to sustain sales PP7004/02/2013(031762) Page 2 of 20

3 targets. We also expect the affordable housing theme to remain in the lime-light, implying that developers will need to work harder i.e. volume game, to achieve or maintain sales/earnings levels; note that moving into the affordable housing theme could mean margin compressions for most developers, particularly the bigger boys who have exposures to higher-end higher-margin products in the past. The irony of targeting the affordable markets is that loan rejection rates tend to be higher; this was also observed by REHDA s recent release of its 2H2015 survey results, which indicated the highest loan rejection rates were for: (i) properties priced from RM500k-700k/unit at 30%, and (ii) RM250k-RM500k/unit at 28%, while higher-end properties priced between RM700k-RM1m/unit only faced 16% loan rejection rates. Between MATRIX and HUAYANG, we prefer HUAYANG as an affordable housing play due to its cheap valuations and high dividend yields vs. MATRIX. Malaysia, KL, Selangor, Penang, Johor Incoming Supply of Residential Property Stock RPS: IS: Kuala Lumpur RPS: IS: Selangor RPS: IS: Johor RPS: IS: Pulau Pinang Residential Property Stock (RPS): Incoming Supply (IS) 250,000 Units - KL, Johor, Selangor, Penang 200, , ,000 50, ,000, , , , , , , , , ,000 0 Units -RPS IS Source: CEIC, JPPH/NAPIC, Kenanga Research Malaysia, KL, Selangor, Penang, Johor Absorption Rates (Incoming SS / DD) Malaysia Residential Absorption Rate (Incoming Supply) KV Residential Absorption Rate (Incoming Supply) <---MORE (Absorption = Supply / Demand) LESS--> Johor Residential Absorption Rate (Incoming Supply) Penang Residential Absorption Rate (Incoming Supply) Worsening Source: CEIC, JPPH/NAPIC, Kenanga Research A lesser proxy to the economy? The real estate sector is known to be one of the pillars of any economy. Locally, Malaysia Property Transacted Values makes up 7.0% of Malaysia s Nominal GDP based on a 7-year average (10-year average: 6.7%). However, over 2015, the ratio has reduced to 5.4% in 4Q15. The KLPRP Index tends to follow this general movement, and if past trends prevail, we can expect the KLPRP Index and thus, property stock prices, to continue the downtrend. PP7004/02/2013(031762) Page 3 of 20

4 Malaysia Property Transacted Values % of Nominal GDP vs. KLPRP Index 10.0% % 1400 Property Sales Value as % of Nominal GDP 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% Property Sales Value as % of Nominal GDP KLPRP Index Linear (Property Sales Value as % of Nominal GDP) KLPRP Index 0.0% 0 Source: CEIC, JPPH/NAPIC, BNM, Kenanga Research Our population study indicates that the early 80 s baby-boomers effect has peaked in 2012, implying that the incremental population turning 30 years of age (assumed average house buyers age) is likely to assume an unexciting flattish trajectory as the next baby-boomers effect was observed in The correlation with this incremental population trend and Malaysia Residential Transacted Units (MRTU) is quite strong at 85%. Incremental Population Study vs. MRTU Incremental Population - Implied age of population turning 30 years of age Malaysia Residential Transacted Units (MRTU)(Units) , , , , , , A A A A A A A A A A A A A A A A A A A A A A E E E E E Source: CEIC, DOS, JPPH/NAPIC, Kenanga Research Sector lacks catalysts!!! Infrastructure stories (e.g. High-Speed-Rail) are also unlikely to revive the sector in the near-term as these catalysts are longer-term play. However, if there are reversals of negative sector policies or introduction of catalytic ones (particularly monetary related measures) during Budget-2017 announcement, the sector may see re-ratings; but as mentioned, we think it is unlikely this year. Ironically, lowering or removal of RPGTs may also be viewed as a negative for developers in view of encouraging incoming supply. Landbanking news is likely to be patchy this year, although most developers say they PP7004/02/2013(031762) Page 4 of 20

5 are eyeing for landbanks. Given the current weak environment, developers are looking for bargains and are likely to hold-out on acquisitions until sellers become more desperate; additionally, we get the sense that developers are also looking to take care of their balance sheet (universe average net gearing: 0.3x; refer to Appendix for details) as visibility of the sector is not clear at the moment. Furthermore, in the past we observe that developers share prices tend to be less sensitive to landbanking newsflow when the sector is in a down-cycle. Expecting CY16 residential sales to decline by -2%. CY15 Malaysia Residential Transaction Values (MRTV) dropped by 10% YoY, the first decline observed in 10 years. We expect the MRTV for CY16 to decline by 2% YoY based on the following: (i) expect household sizes and households appetite of property purchase to remain similar to last year as lending liquidity has not changed while our population study suggests flattish sales volumes, (ii) assumed an average 1.3% increase in population size in line with the last 3 years trend, (iii) expecting 2016 average residential price per unit transacted to decline slightly by 3% YoY as developers release more affordable housing supplies (CY15 average price per unit transacted declined by 6% YoY). KLPRP vs. MRTV and MRTU Msia: Residential Transactions in Units - YoY Chg Msia: Residential Transactions in Value - YoY Chg MRTU and MRTV YoY Chg 40% KLPRP Index 33% 30% 27% 24% 21% 22% 20% 18% 13% 14% 9% 10% 10% 6% 4% 1% 1% 0% F -3% -5% -2% -10% -10% -20% -30% KLPRP Index -40% -36% 0 Source: CEIC, Bloomberg, JPPH/NAPIC, Kenanga Research Are you confident that developer s sales will remain intact? Based on our universe, we expect developers to see an average 9% YoY decline in FY16 sales vs. our prediction that CY16 MRTV will ease by 2% YoY (our universe of developers recorded a 20% YoY decline in FY15 sales vs. CY15 MRTV which fell by 10% YoY). However, we believe there are still risks to our sales assumptions: A stronger 2H déjà vu? We hear many industry players singing the tune of a stronger 2H16 and we cannot help but get the sense of déjà vu as this was the same mantra recited by most developers over 2015; recalled that between Jun-Aug 2015, we had to trim sales targets for 70% of developers under coverage. So when industry players say a better 2H16, do they really expect the issues faced by the banking sector, including high LDRs and slowing loans growth, to dramatically reverse by 2H16? Until there are changes in monetary policies for the sector, we doubt 2H16 will be any better than 1H16. Limited visibility for everyone. Stick to what you have in the books! We note that developers are adopting extra cautious approaches, including clearing of inventories and unsold WIPs. They are also focusing on delivery and realizing unbilled sales because in the past few years, quality of deliverables has suffered due to the heated property sector. The tone has changed very much compared to the bullish property market of where developers only talked about launches. We cannot say for certain that scheduled launches over 2016 will take place as planned, as experienced last year. If 40%-50% of launches do not take place by mid-2016, we can expect developers to trim targets further; this is because we note that it can take up to 12 months for a project to achieve 60%-70% take-up rates due to slow conversions of booking to SPA sales on lending issues. Until then, the market s visibility will remain opaque. PP7004/02/2013(031762) Page 5 of 20

6 Kenanga Sales and Earnings Estimates YoY Growth YoY Change Kenanga Sales Estimates Kenanga Earnings Estimates FY16/17E FY17/18E FY16/17E FY17/18E CRESNDO* -70% 42% -56% 6% ECOWLD 33% 13% 188% 104% HUAYANG -19% 10% 1% -5% IOIPG* -10% 0% 33% 2% KSL* -40% 44% -7% -4% MAHSING 0% 9% 12% 3% MATRIX 36% -12% 33% -13% MRCB* 1% 0% -151% 70% SPSETIA* -7% 0% -23% 18% SUNWAY -17% 20% -18% 4% UEMS* -36% 7% 16% 1% UOADEV* 25% 20% -11% 2% Simple Average -9% 11% -2% 12% Simple Average w/o ECOWLD** -12% 10% -17% 4% Weighted Average w/o ECOWLD** -6% 6% -6% 8% * Core ** We excluded ECOWLD earnings growth from average calculations as their property earnings are at maiden stages and will only normalize in FY17. Note: Refer to Appendix for Details of Earnings/Sales assumptions A period of compressed valuations? Over FY14-15, the sector achieved its peak earnings growth of 9% and 18% YoY, respectively, based on our universe. However, based on our estimates and weak sales trajectory over FY15-16, we can expect FY16-17E earnings to see softer earnings growth of 5% each. If so, this may warrant a period of PER compression. Kenanga Earnings Estimates Cumulative Core Earnings Growth FY13 FY14 FY15 FY16E FY17E CNP (RM'm) CNP (RM'm) CNP (RM'm) CNP (RM'm) CNP (RM'm) UEMS IOIPG SPSETIA SUNWAY MAHSING UOADEV ECOWLD MRCB KSL MATRIX HUAYANG CRESNDO Grand Total YoY Chg in Grand Total 7.3% 9.0% 18.3% 5.2% 5.2% Total Excl MRCB, ECOWLD YoY Chg 6.1% 21.3% -0.2% 1.0% Developers FD RNAV Discounts Historical HIGH Discount to FD RNAV Historical Average Discount to FD RNAV Historical LOW Discount to FD RNAV 1Q15 2Q15 3Q15 4Q15 1Q16 UEMS -80% -57% -23% -71% -76% -73% -74% -74% IOIPG* -66% -58% -51% -61% -65% -63% -61% -60% SPSETIA -48% -40% -15% -40% -43% -42% -43% -44% SUNWAY** -49% -35% -15% -33% -35% -26% -38% -34% MAHSING -69% -56% -49% -48% -49% -53% -50% -55% UOADEV -60% -45% -33% -40% -49% -52% -48% -48% ECOWLD* -59% -54% -43% -39% -52% -54% -55% -54% Average (>RM3b mkt cap) -62% -50% -33% -49% -53% -52% -53% -53% MATRIX -69% -44% -30% -34% -25% -33% -30% -30% CRESNDO -74% -56% -39% -61% -63% -68% -72% -74% HUAYANG -49% -39% -23% -41% -45% -47% -47% -48% MRCB* ** -58% -27% 25% -40% -39% -45% -37% -40% KSL* -85% -78% -65% -70% -76% -79% -82% -81% Average (<RM3b mkt cap) -67% -49% -26% -49% -50% -54% -54% -55% Overall Sector Average -64% -49% -30% -49% -51% -53% -53% -53% * May not be representative due to limited data ** (i) Sunway/ECOWLD is based on SOP. Source: Bloomberg, Kenanga Research PP7004/02/2013(031762) Page 6 of 20

7 Can we truly say that property valuations have bottomed if there are still earnings risks in the near horizon? In terms of Fwd. PER and Fwd. PBV, big-cap developers are mainly trading at trough to average levels while small-mid cap ones are trading at average to +1.0SD levels, save for exceptions like MATRIX whose Fwd. PER is at near peak valuations (refer to Appendix). In terms of RNAV discount, our universe of developers is trading at 53%, which is similar to the last quarter (7-year historical average RNAV discount for the sector is at 49%), suggesting that valuations have bottomed. This is far from its historical peak discount rate of 64% back in However, our sales assumptions still have risks of downward revisions by mid-year as we highlighted earlier that even without any major sales target revisions, the earnings trajectory of developers is already losing steam. In light of potentially weaker earnings cycle, we reckon that calling a bottom on valuations now may be jumping the gun. KLPRP Fwd PBV vs. YoY Chg in Malaysia Residential Transacted Values (MRTV) Source: CEIC, Bloomberg, JPPH, Kenanga Research To recap what we mentioned in our sector report, we highlighted the following; (i) During the Global Financial Crisis of , the KLPRP Index Fwd. PBV hit a low of 0.5x, which was in tandem with the slowdown in MRTV back in 2009 of +1% YoY (Fig 17), (ii) Over , the MRTV achieved a healthy average growth rate of 15% YoY (range: 6%-22%) while the KLPRP Fwd. PBV valuations remained above 0.6x (-1.0SD), and (iii) However, CY15 MRTV showed growth of -10% YoY the first decline in 10 years. Since we expect CY16 MRTV to be weak at -2% YoY, it begs the question of; will the sector de-rate to levels if the Malaysia Residential Transacted Values (MRTV) shows its sharpest decline in 10 years? PP7004/02/2013(031762) Page 7 of 20

8 RECOMMENDATIONS No good reasons to change our valuations. Our applied RNAV discounts for developers are based on historical average to - 1.0SD levels, save for a few exceptions, which are valued at +1.0SD because; (i) developers like MATRIX which are operating in pure affordable housings in Negeri Sembilan is facing less loan rejection issues compared to affordable housing developers in Klang Valley, and (ii) ECOWLD as we anticipate the listing of EWI by 3Q16 to buoy its share prices as ECOWLD is expected to take-up a 30% stake in EWI. Based on the earlier reasons mentioned, there is no fundamental reason to change our valuations as it is reflective of the property market scenario, save for EWI which we widen its Property RNAV discount closer to our sector average. As a result of the recent share price exuberance observed in property counters, we are downgrading CALLs for UEMS, IOIPG and KSL to UNDERFORM from MARKET PERFORM while our previous preferred pick (for 4Q15 and 1Q16), UOADEV is now MARKET PERFORM (from OUTPERFORM) due to its strong share price rally of late. Our CALLS are maintained for the following; (i) MARKET PERFORM for SPSETIA, SUNWAY, MAHSING, MRCB, MATRIX), and (ii) OUTPERFORM for ECOWLD and HUAYANG. Downgrade Property sector to UNDERWEIGHT, from NEUTRAL, due to our downgrades in calls. For investors who have positions or have recently jumped onto the bandwagon of potential positive property measures, we advise investors to make hay while the sun shines i.e. top slice while sentiment is riding high. For investors that have not taken position in developers, we strongly suggest avoiding the sector for now. We will reassess our sector call again once we have confirmation that key launches from our universe of developers have taken place and that take-up rates are expediting. Changes in CALLs/TPs Developers 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 UEM Sunrise UP % -75% % Downgrade IOI Properties UP % -62% % Downgrade SP Setia MP % -45% % Maintain Sunway Berhad MP % -34% % Maintain Ecoworld OP % -45% % Maintain Mah Sing Group MP % -55% % Maintain UOA Development MP % -44% % Downgrade MRCB MP % -32% % Maintain KSL UP % -83% % Downgrade Matrix Concepts MP % -30% % Maintain Crescendo UP % -72% % Maintain Hua Yang OP % -38% % Maintain Weighted Average -56% -52% -1% Simple Average -56% -51% -1% Note: For further details and explanation, please refer to APPENDIX PP7004/02/2013(031762) Page 8 of 20

9 APPENDIX Results Review 4QCY15 set of earnings was better than expected. Out of 12 developers under coverage; (i) 42% (UOADEV, IOIPG, SPSETIA, MATRIX, ECOWLD) exceeded estimates mainly on better billing progresses, (ii) 17% (MRCB, KSL) came below. This is an improvement from last quarter as only 8% came above while majority (67%) was broadly within expectations. WIPs/Inventories led to better sales in 4Q. Headline sales wise, (i) 33% exceeded their targets (SUNWAY, SPSETIA, MATRIX, MRCB) as developers focused on affordable housings, clearance of WIPs/inventories via heavy marketing campaigns and/or benefitted from overseas sales, (ii) 25% missed targets (UOADEV, HUAYANG, KSL) due to deferment of new launches. This is an improvement from last quarter, where 67% of developers were on track while the remaining missed targets. However, note that several developers did revised down their targets in mid Similar earnings revision quantum to last quarter. Earnings revision wise, (i) we have trimmed earnings for 42% of developers (MAHSING, UOADEV, SUNWAY, MRCB, KSL) on weaker sales prospects and margin compressions, (ii) raise earnings for 25% of developers (IOIPG, SPSETIA, ECOWLD) due to more aggressive billing cycles. Over the reporting season, we lowered TPs for 25% of developers (SETIA, CRESNDO, KSL) while the others remained unchanged. CALL wise, only KSL was downgraded while IOIPG was upgraded. This is similar, if not, slightly better than last quarter (33% and 8% of TPs lowered and raised, respectively) while 17% was downgraded. Property Stock Performance over 1QCY16 Property stocks underperform the market, as expected. As of our price cut-off date on 18/3/16, the FBMKLPRP Index was up slightly by 1.1% vs. the FBMKLCI s 3.8%. Big cap developers (>RM3b market cap) held up relatively well with an average of +2.1% YTD returns while small-mid cap ones (<RM3b market cap) was down by -0.9% YTD. Property Share Prices Quarterly Performance 2QCY15 3QCY15 4QCY15 1QCY16 Share Price Changes YTD since 20/3/ Share Price Changes YTD since 23/6/ Share Price Changes YTD since 25/9/ Share Price Changes YTD since 23/12/ Property Developers 23/6/ /9/ /12/ /3/2016 UEM Sunrise -24.1% 14.9% -3.4% -1.8% Eco World -20.7% -4.6% -2.1% 2.8% KSL 5.4% -22.1% 5.2% 0.0% IOI Properties -10.0% 3.2% 12.4% 3.2% UOA Development -8.8% -7.3% 8.4% 4.8% SP Setia -5.0% 2.2% -2.1% -1.9% Sunway Berhad 0.4% 2.9% -12.9% 4.9% Big cap average -9.0% -1.5% 0.8% 1.7% Hua Yang -6.7% -4.1% -0.5% 3.2% Mah Sing Group -19.4% -10.6% -14.5% 4.6% Crescendo -5.3% -12.1% -14.2% 1.1% Matrix Concepts 13.3% -16.0% 5.6% -0.8% MRCB -2.4% -9.8% 14.4% -3.1% Small-mid cap average -4.1% -10.5% -1.9% 1.0% Overall Average -7.0% -5.3% -0.3% 1.4% YTD Performance of Big Cap Developers (>RM3b mkt cap) Source: Company, Kenanga Research Share Price YTD Gain CY16 (>RM3b market cap) -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% BERJAYA LAND BHD SP SETIA BHD KLCC PROPERTY HOLDINGS BHD MAH SING GROUP BHD KLPRP Average IOI PROPERTIES GROUP BHD ECO WORLD DEVELOPMENT GROUP UEM SUNRISE BHD UOA DEVELOPMENT BHD IGB CORPORATION BHD SUNWAY BHD PP7004/02/2013(031762) Page 9 of 20

10 YTD Performance of Small-mid Cap Developers (<RM3b mkt cap) Source: Company, Kenanga Research Share Price YTD Gain CY16 (<RM3b market cap) -25.0% -15.0% -5.0% 5.0% 15.0% 25.0% 35.0% TITIJAYA LAND BHD ISKANDAR WATERFRONT CITY BHD CREST BUILDER HOLDINGS BHD A & M REALTY BHD GLOBAL ORIENTAL BHD SENTORIA GROUP BHD TALAM TRANSFORM BHD YTL LAND & DEVELOPMENT BHD EKOVEST BHD PLENITUDE BHD SBC CORPORATION BHD SUNSURIA BHD PARAMOUNT CORP BHD GUOCOLAND MALAYSIA BHD SELANGOR DREDGING BHD SYMPHONY LIFE BHD GLOMAC BHD IVORY PROPERTIES GROUP BHD IBRACO BHD ENCORP LAND & GENERAL BHD MALTON BHD TA GLOBAL BHD CRESCENDO CORPORATION BHD Average WING TAI MALAYSIA BHD SHL CONSOLIDATED BHD MATRIX CONCEPTS HOLDINGS BHD SELANGOR PROPERTIES BERHAD PJ DEVELOPMENT HOLDINGS BHD MAGNA PRIMA BHD I-BHD COUNTRY HEIGHTS HOLDINGS BHD KLPRP MEDA INC BHD HUNZA PROPERTIES BHD HUA YANG BHD MK LAND HOLDINGS BHD TAHPS GROUP BHD KSL HOLDINGS BHD DUTALAND BHD YNH PROPERTY BHD DAIMAN DEVELOPMENT BHD LBS BINA GROUP BHD TAMBUN INDAH LAND BHD TROPICANA CORPORATION BERHAD KARAMBUNAI CORP BHD MKH BHD EASTERN & ORIENTAL BHD SCIENTEX BHD Average Lending Rate (AVL) Trends OPR (%) AVL (%) Source: BNM, CEIC, Kenanga Research PP7004/02/2013(031762) Page 10 of 20

11 Malaysia: House Price Index 3Q15 vs. 10-yr average House Price Index: Malaysia House Price Index: Kuala Lumpur House Price Index: Selangor House Price Index: Johor House Price Index: Pulau Pinang 3Q15 YoY Changes in HPI 10-yr Average 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% YoY Chg: House Price Index: Malaysia YoY Chg: House Price Index: Kuala Lumpur YoY Chg: House Price Index: Selangor YoY Chg: House Price Index: Johor YoY Chg: House Price Index: Pulau Pinang Source: CEIC, BNM, Kenanga Research Malaysia/Klang Valley Residential Transacted Values (Quarterly Trends) 25, Msia: TOTAL Residential Sales Value (RM'm) Msia: TOTAL Residential Sales (Value): YoY change 60% 600 Klang Valley Property Sales Value Index KLPRP QoQ Chg 50% 20, % % , % , % 200 0% 5, % % % Source: CEIC, JPPH, Kenanga Research PP7004/02/2013(031762) Page 11 of 20

12 Kenanga Sales and Earnings Estimates Company Kenanga Sales Estimates Kenanga Earnings Estimates (RM'm) (RM'm) FY16/17E FY17/18E FY16/17E FY17/18E CRESNDO* ECOWLD 4,000 4, HUAYANG IOIPG* 1,800 1, KSL* MAHSING 2,300 2, MATRIX MRCB* SPSETIA* 4,000 4, SUNWAY 1,000 1, UEMS* 1,500 1, UOADEV* 1,000 1, Net Gearing Net Gearing Company FY16/17 FY17/18 UEM Sunrise IOI Properties SP Setia Sunway Berhad Mah Sing Group UOA Development (0.1) (0.2) Eco World Matrix Concepts Crescendo Hua Yang MRCB KSL Average (all) Big-cap Average (UEMS, IOIPG, SPSETIA, SUNWAY, MAHSING, UOADEV, ECOWLD) Mid-cap Average (MATRIX, CRESNDO, HUAYANG, MRCB, KSL) Fwd PER levels Fwd PER Valuation at last Levels Fwd PER Fwd PER Fwd PER Std Dev Std Dev price Std Dev Peak Average Trough Peak Trough UEMS IOIPG SPSETIA SUNWAY MAHSING UOADEV ECOWLD 19.2 n.m n.m. n.m. MATRIX CRESNDO HUAYANG MRCB 48.7 n.m n.m. n.m. KSL AVERAGE * Stocks excluded from the average computation are 1) MRCB due to previous loss making years 2) ECOWLD due to the RTO. Fwd PBV levels Fwd PBV at Current PBV Fwd PBV Fwd PBV Fwd PBV Std Dev Std Dev last price Std Dev Peak Average Trough Peak Trough UEMS IOIPG SPSETIA SUNWAY MAHSING UOADEV ECOWLD n.m. n.m. MATRIX CRESNDO HUAYANG MRCB KSL AVERAGE * Stocks excluded from the average computation are 1) ECOWLD due to the RTO. PP7004/02/2013(031762) Page 12 of 20

13 KLPRP Fwd PBV vs. Policies Source: Bloomberg, Various, Kenanga Research PP7004/02/2013(031762) Page 13 of 20

14 CALLs/TPs (Part 1 of 2) Developers 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) UEM Sunrise UP % -75% % Downgrade % -75% 4.29 MP IOI Properties UP % -62% % Downgrade % -62% 5.55 MP SP Setia MP % -45% % Maintain % -45% 5.61 MP Sunway Berhad MP % -34% % Maintain % -34% 4.88 MP Ecoworld OP % -45% % Maintain % -40% 3.17 OP Mah Sing Group MP % -55% % Maintain % -55% 2.99 MP UOA Development MP % -44% % Downgrade % -44% 4.00 OP MRCB MP % -32% % Maintain % -32% 2.05 MP KSL UP % -83% % Downgrade % -83% 7.07 MP Matrix Concepts MP % -30% % Maintain % -30% 3.51 MP Crescendo UP % -72% % Maintain % -72% 6.32 UP Hua Yang OP % -38% % Maintain % -38% 3.52 OP Weighted Average -56% -52% -1% Weighted Average -56% -51% Simple Average -56% -51% -1% Simple Average -56% -51% Previous Call (RM) CALLs/TPs (Part 2 of 2) Developers UEM Sunrise IOI Properties SP Setia Sunway Berhad Ecoworld Mah Sing Group UOA Development MRCB KSL Matrix Concepts Crescendo Hua Yang Comments CALL downgraded but TP maintained as we see no reason for changes in valuations. CALL downgraded but TP maintained as we see no reason for changes in valuations. No changes to CALL/TP. No changes to CALL/TP. Maintain CALL but lower TP during the recent results reporting. Listing of EWI should buoy share price as the group is expected to take on a 30% stake in EWI. Such positive newsflow will be a plus for stock performance. However, we lowered out TP in-line with our sector view and is widening discount factor closer to the sector average. No changes to CALL/TP. No changes to CALL/TP. No changes to CALL/TP. CALL downgraded but TP maintained as we see no reason for changes in valuations. No changes to CALL/TP. No changes to CALL/TP. No changes to CALL/TP. PP7004/02/2013(031762) Page 14 of 20

15 Peer Comparison NAME Price (18/3/16) Mkt Cap PER (x) Est. NDiv. Yld. Historical ROE P/BV Net Profit (RMm) FY16/17 NP Growth (RM) (RMm) FY15/16 FY16/17 FY17/18 (%) (%) (x) FY15/16 FY16/17 FY17/18 (%) (%) (RM) DEVELOPERS UNDER COVERAGE S P SETIA BHD* , % 13.9% % 17.8% 3.08 MARKET PERFORM IOI PROPERTIES GROUP BHD* , % 3.9% % 1.6% 2.09 UNDERPERFORM UEM SUNRISE BHD* , % 3.9% % 1.3% 1.07 UNDERPERFORM SUNWAY BHD , % 11.7% % 3.7% 3.20 MARKET PERFORM MAH SING GROUP BHD^ , % 14.3% % 2.6% 1.35 MARKET PERFORM ECO WORLD DEVELOPMENT , % 2.5% % 103.7% 1.74 OUTPERFORM GROUP BHD UOA DEVELOPMENT BHD* , % 14.1% % 2.1% 2.22 MARKET PERFORM MALAYSIAN RESOURCES CORP BHD , % -3.3% % 70.1% 1.39 MARKET PERFORM KSL HOLDINGS BHD , % 10.0% % -4.0% 1.18 UNDERPERFORM MATRIX CONCEPTS HOLDINGS BHD , % 29.5% % -12.4% 2.46 MARKET PERFORM CRESCENDO CORPORATION BHD* % 15.3% % 6.3% 1.74 UNDERPERFORM HUA YANG BHD % 25.9% % -4.9% 2.20 OUTPERFORM CONSENSUS NUMBERS IGB CORPORATION BHD , % 5.0% % 7.0% 4.10 NEUTRAL GLOMAC BHD % 9.8% % 10.2% 1.03 BUY PARAMOUNT CORP BHD % 7.8% % 11.8% 2.32 BUY TAMBUN INDAH LAND BHD % 24.0% % 11.0% 1.59 BUY * Core NP and Core PER ** Crescendo per share data is based on non-fully Diluted ^ Last price and TP is Ex-rights and Ex-Bonus. FY17/18 NP Growth Target Price Rating PP7004/02/2013(031762) Page 15 of 20

16 DEVELOPERS FWD PBV Fwd PBV: UEM Sunrise Fwd PBV: SP Setia FD PNTA 2-yr Average forward PNTA Fwd average PNTA +1SD Forward PBV Fwd 4 years Average PBV+0.5SD Fwd 4 years Average PBV -0.5SD Fwd 4 years Average PBV +1SD (x) Fwd average PNTA +2SD Fwd average PNTA -2SD Fwd average PNTA +0.5SD Fwd average PNTA -0.5SD Fwd average PNTA +1.5SD Fwd average PNTA -1.5SD Fwd average PNTA -1SD (x) Fwd 4 years Average PBV -1SD Fwd 4 years Average PBV +1.5SD Fwd 4 years Average PBV -1.5SD Fwd 4 years Average PBV +2SD Fwd 4 years Average PBV -2SD 4-yr Average Forward PBV Fwd PBV: Sunway Bhd Fwd PBV: Mah Sing (x) FD PBV 2-yr Average forward PBV Fwd average PBV +1SD Fwd average PBV +2SD Fwd average PBV -2SD Fwd average PBV +0.5SD Fwd average PBV -0.5SD Fwd average PBV +1.5SD Fwd average PBV -1.5SD Fwd average PBV -1SD (x) Fwd PBV 4 Years Average FWD PBV Fwd 4 Years Average PBV +0.5SD Fwd 4 Years Average PBV -0.5SD Fwd 4 Years Average PBV +1SD Fwd 4 Years Average PBV -1SD Fwd 4 Years Average PBV +1.5SD Fwd 4 Years Average PBV -1.5SD Fwd 4 Years Average PBV +2SD Fwd 4 Years Average PBV -2SD Fwd PBV: UOA Development Fwd PBV: Matrix Concepts (x) 1.60 Fwd Average PBV +0.5SD Fwd Average PBV +1SD Fwd Average PBV +1.5SD Fwd Average PBV +2SD Fwd PBV Fwd Average PBV -0.5SD Fwd Average PBV -1SD Fwd Average PBV -1.5SD Fwd Average PBV -2SD Average Fwd PBV since listing 2.00 (x) FD PBV 2-yr Average forward PBV Fwd average PBV +1SD Fwd average PBV +2SD Fwd average PBV -2SD Fwd average PBV +0.5SD Fwd average PBV -0.5SD Fwd average PBV +1.5SD Fwd average PBV -1.5SD Fwd average PBV -1SD Fwd PBV: Hua Yang Fwd PBV: Crescendo 2.20 (x) FWD PBV S.Dev +1 S.Dev -1 FWD 2 year AVG PBV S.Dev +2 S.Dev -2 S.Dev -1.5 S.Dev +1.5 S.Dev +0.5 S.Dev -0.5 (x) FD PBV 2-yr Average forward PBV Fwd average PBV +1SD Fwd average PBV +2SD Fwd average PBV -2SD Fwd average PBV +0.5SD Fwd average PBV -0.5SD Fwd average PBV +1.5SD Fwd average PBV -1.5SD Fwd average PBV -1SD PP7004/02/2013(031762) Page 16 of 20

17 Fwd PBV: MRCB Fwd PBV: IOI Properties (X) FWD PBV FWD AVG PBV S.Dev +1 S.Dev -1 S.Dev +2 S.Dev -2 (X) FWD PBV FWD AVG PBV S.Dev +1 S.Dev -1 S.Dev +2 S.Dev Fwd PBV: KSL Fwd PBV: Eco World (X) 1.40 FWD PBV FWD AVG PBV S.Dev +1 S.Dev -1 S.Dev +2 S.Dev -2 PBV (X) FWD PBV FWD AVG PBV S.Dev +1 S.Dev -1 S.Dev +2 S.Dev This section is intentionally left blank PP7004/02/2013(031762) Page 17 of 20

18 DEVELOPERS FWD PER Fwd Core PER: UEM Sunrise Fwd Core PER: SP Setia (RM) PRICE (RM) 13.5 x 18.5 x 23.5 x 28.5 x 33.5 x (RM) PRICE (RM) 9.4 x 12.4 x 15.4 x 18.4 x 21.4 x 24.4 x Fwd PER: Sunway Bhd Fwd PER: Mah Sing (RM) PRICE (RM) 7.1 x 8.2 x 9.3 x 10.4 x 11.4 x Fwd Core PER: UOA Development Fwd PER: Matrix Concepts Fwd PER: Hua Yang Fwd Core PER: Crescendo PP7004/02/2013(031762) Page 18 of 20

19 Fwd PER: MRCB Fwd Core PER: IOI Properties 5.50 PRICE (RM) PER 5.0 x PER 22.5 x PER 40.0 x PER 57.5 x PER 75.0 x 2.80 PRICE (RM) PER 14.6 x PER 16.8 x PER 19.0 x PER 21.1 x PER 23.3 x FwdCore PER: KSL Fwd PER: Eco World 7.0 PRICE (RM) PER 18.2 x PER 50.9 x PER 83.6 x PER x PER x This section is intentionally left blank PP7004/02/2013(031762) Page 19 of 20

20 Stock Ratings are defined as follows: Stock Recommendations OUTPERFORM :A particular stock s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). MARKET PERFORM :A particular stock s Expected Total Return is WITHIN the range of 3% to 10%. UNDERPERFORM :A particular stock s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). Sector Recommendations*** OVERWEIGHT :A particular sector s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). NEUTRAL :A particular sector s Expected Total Return is WITHIN the range of 3% to 10%. UNDERWEIGHT :A particular sector s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). ***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage. This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. Published and printed by: KENANGA INVESTMENT BANK BERHAD (15678-H) 8th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia Telephone: (603) Facsimile: (603) Website: Chan Ken Yew Head of Research PP7004/02/2013(031762) Page 20 of 20