Property sector stands to benefit post-GE14: MIDF Research

PETALING JAYA: Property stocks are expected to benefit from the spillover effect post 14th General Election (GE14) if the outcome turns out to be favourable to the market, according to MIDF Research.
“We have examined the past performances of KL Property Index against KLCI for the period one month prior and one month after GE 13 in 2013 and GE12 in 2008. KL Property Index has been historically more sensitive to broader market movement due to its high beta nature,” it said in a note last Friday.
MIDF said KL Property Index chalked up gains of 22.8% in one month after GE13 against KLCI’s gain of 4.8%. Meanwhile, KL Property Index recorded steeper decrease of 10.1% in one month after GE12 against KLCI’s loss of 5.8%.
Nevertheless, the research house said it believes that upside momentum would be slightly weaker due to the present higher interest rate environment.
Furthermore, MIDF said it is maintaining its positive view on the sector as it see values emerged for some property stocks after the recent sell-down.
Note that the performance of Kuala Lumpur Property Index (KLPRP) lacked lustre in Q1 2018, losing by 11.6% against 3.7% gain in KLCI. MIDF said the sell-down could be partly attributed to the concern over further overnight policy rate (OPR) hike.
The decline in KLPRP was mainly led by big caps namely Mah Sing Group and Eco World Development Group, while performance of KLPRP remains muted in April, dropping 1.6% against 0.9% gain in KLCI.
Nevertheless, MIDF said it believes that key risk for the sector would be the potential weaker house price index (HPI) on sequential basis in Q4 2017 which would dent the recovery of the sector.
It said the HPI showed sign of weakening in Q4 2017 as preliminary HPI figures of 190.0 represents a slight decrease from HPI of 190.1 in Q3 2017.
"Note that this will be the first sequential decrease in HPI since 2009 if actual HPI for 4Q2017 turns out to be lower quarter-on-quarter. This may change our current view of stable property prices outlook," it noted.
MIDF recommended "buy" calls on the three property stocks that are trading steeply below book value, namely EcoWorld Development, Mah Sing and UEM Sunrise.
"We are also rating "buy" for UOA Development for its attractive dividend yield 6.2%, SP Setia for its higher sales target and decent dividend yield of 5.4% and E&O for deep value in STP2A project," it added.