property sector update : still in hot flavour - 04/10/2010

8/8/2019 Property Sector Update : Still In Hot Flavour - 04/10/2010

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Table 2. Fair values(RM/ share)Company Price FV

SP Setia 4.51 4.95IJM Land 2.40 3.00Suncity 3.96 5.48Mah Sing 1.81 2.06Sunrise 2.14 2.88YNH 1.73 1.86Paramount 4.52 5.80Glomac 1.52 1.72Hunza 1.40 1.58

Loong Kok W en, CFA(603) 92802237

[email protected]

Table 1 : Property Sector Valuations

FYE PriceEPS #(sen)

EPS growth(% )

PER(x )

P/NTA(x )

P/CF(x )

GDY(% ) Rec

(RM/ s) FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10

SP Setia Oct 4.51 19.9 22.8 24.1 14.6 22.6 19.7 2.16 30.7 3.2 MP

IJM Land Mar 2.40 12.1 17.3 32.1 43.2 19.9 13.9 1.84 6.3 0.9 OP

Suncity Dec 3.96 34.8 41.3 9.0 18.6 11.4 9.6 0.80 3.2 9.1 OP

Mah Sing Dec 1.81 14.0 17.2 23.6 22.8 12.9 10.5 1.64 34.2 3.1 OP

Sunrise Jun 2.14 29.9 33.2 10.6 11.1 7.2 6.4 0.87 10.3 2.3 OP

YNH Dec 1.73 15.8 17.6 22.6 11.6 11.0 9.8 0.94 17.2 2.3 MP

Paramount Dec 4.52 57.7 63.1 9.0 9.4 7.8 7.2 0.99 8.1 6.5 OP

Glomac Apr 1.52 19.7 24.3 44.0 23.3 7.7 6.2 0.78 19.5 7.8 OP

Hunza Jun 1.40 27.6 20.9 3.4 -24.2 5.1 6.7 0.59 4.9 4.0 TBSector simple Avg 11.7 10.0 1.18 14.9 4.4

* price at 1 Oct 10 # Normalised

Regulatory measures unlikely to be harsh. While we believe the propertysector will be imposed with tighter rules, any new measures are likely to be

moderate as the Government would not want to dampen the whole property sector.

In line with our view, the PM has also recently indicated that new measures are

likely to target at home buyers who own more than two houses. Undoubtedbly the

proposed measures could reduce some speculative acitivies due to lower leverage

ability, we think the overall impact on the property sector would be moderate, as:

(i) Young populations are typically the first or second home owners; and (ii) Buyers

who own more than two homes are generally the affluent group.

Strong support for demand. There are still a few strong catalysts to drivedemand for properties going forward: (i) Faster growing of young demographics to

drive big-ticket purchases i.e. homes and motor vehicles; (ii) Low mortgage rate

as commercial banks continue to offer discount to BLR; (iii) Aggressive

promotions/incentives being offered by developers; (iv) Strengthening in ringgit

that encourages foreigners participation; and (v) Property is a preferred vehicle to

hedge against inflation.

Property prices continue to hold well until 2012/13. Based on our analysison the relationship between young population growth and ARPP (Average

Residential Property Price), ARPP will continue to hold well over the next 2 years

until 2012/13. Property prices in general have appreciated by 10% from last year

(from industry sources). Apart from the driving forces for demand mentioned

above, given the increasingly higher replacement cost for landbank borne by

developers, as well as stable building material prices, property prices for primary

market will be supported even though developers margins remain the same.

Risks. Our view is formed based on the assumption that first and second homebuyers are exempted from lower LTV ratio. However, if this is not the case, our

investment thesis can be derailed. Key risks for the property sector are: 1) lower-

than-expected cap on lending rate imposed by Bank Negara Malaysia; 2) higher

tax bracket for real property gain tax (RPGT); and 3) country risks.

Maintain Overweight. We maintain our Overweight stance on the property sector.Our top picks remain unchanged: IJM Land (OP, FV = RM3.00), Mah Sing (OP ,

FV = RM2.06), and Suncity (OP, FV = RM5.48).

Corporate High l ig hts

Sec to r Upda te

PropertyStill In Hot Flavour

Malasia

MARKET

DATELINE

P

P

7767/09/2010(025354)

Recom : Overweight(Maintained)

4 October 2010

RHB ResearchInstitute Sdn BhdA member of theRHB Banking GroupCompany No: 233327 -M

Please read important disclosures at the end of this report.


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Still In Hot Flavour

Regional markets started to tighten. Since last year, regional markets such as China, Hong Kong andSingapore have started to implement various measures to curb speculations in the property market. In our

opinion, generally the Asian countries are more prone to the formation of speculative bubble (compared to

western countries), given the current low interest rate and high savings rate environment. As such, in line with

other regional countries, we believe Malaysia is likely to follow suit, following the re-imposition of RPGT

announced in Budget 2010 last year.

Table 3: Various measures implemented by region al countries

Country Measures

Singapore 1. Increase the holding period for imposition of seller's stamp duty from the current 1 year to 3 years.

Aug-10 2. For property buyers who already have one or more outstanding housing loans at the time of the new housing purchase:

(i) Increase the minimum cash payment from 5% to 10% of the valuation limit; and

(ii) Decrease the loan-to-value l imit for housing loans granted by financial institutions regulated by Monetary Authority of

Singapore to these buyers from the current 80% to 70%.

China 1. Downpayment for second homes increased from 40% to 50%.

Apr-10 2. Mortgage rate for second home loans cannot be lower than 110% of benchmark rates.

3. Increase in downpayment on first homes of over 90sqm to 30% from 20%.

Oct-10 4. Commercial banks to suspend offering loans to buyers of third homes.

5. Downpayment for first home puchases (for >900sqf) increased to 30% or higher.

Hong Kong 1. Stamp duty on transactions of properties valued more than HK$20m will be increased to 4.25% from 3.75% previously

Aug-10 2. Buyers will no longer be allowed to defer payment of stamp duty on such transactions.

3. Deposit requirement for a property costing HK$12m or more is increased to 40% from 30%.

Source: News agencies, Starbiz

New regulatory measures are likely to be more accommodative. While the concerns on lowering loan-to-value (LTV) ratio has overshadowed the performance of most property stocks, our Prime Minister has recently

indicated that new measures are likely to target at home purchasers who own more than two houses. Meanwhile,

first and second home buyers will still be entitled to 90% LTV ratio. While we welcome some measures to be

implemented to curb the overheating property market, we think any measures are likely to be on a gradual

basis, taking a cue from the neighbouring countries, i.e. 80% LTV cap for third and subsequent house purchases,

and gradually lower to 70% after some period of time; or 80% LTV cap for second house, 70% for third house

and so on. A tiering system can also be used, such as a LTV cap to be imposed only for residential properties

priced above RM500k, for example. Undoubtedbly the proposed measures could reduce some speculative acitivies

due to lower leverage ability and hence lower Return On Equity, we think the impact on the property sector

Chart 1: China NDRC Property P rice Index Y OY

-4

-2

0

2

4

6

8

10

12

14

Aug-

05

Feb-

06

Aug-

06

Feb-

07

Aug-

07

Feb-

08

Aug-

08

Feb-

09

Aug-

09

Feb-

10

Aug-

10

%

NDRC: National Development and Reform Commission

Source: Bloomberg

Chart 2: Singapore URA Pro perty Price In dex All Residential

-30

-20

-10

0

10

20

30

40

50

Mar-05

Sep-05

Mar-06

Sep-06

Mar-07

Sep-07

Mar-08

Sep-08

Mar-09

Sep-09

Mar-10

%

URA: Urban Redevelopment Authority

Source: Bloomberg


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would be moderate, due to the following reasons: (i) Young populations are typically the first or second home

owners; and (ii) Buyers who own more than two homes are generally the affluent group.

Strong support for demand. Apart from the negative headwind from tightening regulatory measures, we thinkthere are still a few strong drivers to lead demand growth for properties going forward: (i) Faster growing of

young demographics to drive big-ticket purchases i.e. homes and motor vehicles; (ii) Low mortgage rate as

commercial banks continue to offer discount to BLR; (iii) Aggressive promotions/incentives being offered by

developers; (iv) Stregthening in ringgit that encourages foreigners participation; and (v) Property is a preferred

vehicle to hedge against inflation.

(i) Faster grow ing of young demographics to drive big-ticket purchases

We believe the faster growing young demographics (relative to other age groups of 0-14 and >65) in Malaysia

are the key driving force for property demand. Historically, the cycle of private consumption roughly coincides

with the cycle of growth in young demographic increase lagged by 19/20 years. Hence, given the strong growth

in population aged 15-64 in year 1992, we reasonably believe that this will then translate to high private

consumption growth in 2010-2012, and hence stable increase in ARPP (see charts below) until 2012/2013. Our

view is reinforced, as the increase in the middle-aged population will lead to the formation of higher number of

households, and this group of population typically has higher propensity to spend. In addition, the younger

population generally has lower risk aversion, due to the lack of experience in the past rounds of economic crisis

(in the mid 1980s and 1997 Asian Financial Crisis). Based on RHBRIs economics teams projections, private

consumption is estimated to grow by 5.6% in 2010 and 5.4% in 2011. Note that the strong growth in privateconsumption is already seen from the substantial pick-up in property as well as motor vehicle sales since late

2009.

Chart 3: Correlation between % change in population aged 15-64 increase and private consumption

growth

0.9%

-0.7%

4.4%

3.1%

7.4%

4.3%

6.0%

12.5%

-2.2%

4.2%

6.4%

2.3%

0.9%

3.7%

1.0%

-5.1%

-0.4%

-2.7%

-3.1%

1.0%

15.9%

-11%

-9%

-6%

-4%

-1%

2%

4%

7%

9%

12%

14%

17%

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010f

2011f

Growth in young demographic increase (lagged 19 years) Private consumption growth

Source: BNM, DOS, RHBRI


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(ii) Cheap financing in addition to innovative developers incentives

Given the prevailing (relatively) low interest rate environment, the system is still flushed with liquidity, which

encourages property buying. Competition among banks have also kept discount to BLR at around 1.8-2.2%,

compared to a premium above BLR prior to 2005, which partly explains the cooler property market during thatperiod. We opine that, even if 70% cap on LTV is to be implemented on buyers who own more than two houses,

developers are likely to continue with their aggressive incentives/rebates to lower the entry price to boost the

affordability of potential buyers. A check on the ground, depending on negotiations with developers, currently

some developers even allow buyers to make their downpayment by using credit cards and split into few tranches.

Some, for instance, offer 10% rebate and buyers only need to fork out RM5,000 as downpayment for a terrace

house priced at RM500k, and pay nothing until completion. Note that mortgage loan is still based on 90% of the

value of property i.e. RM500k, which would effectively mean almost 100% financing for the house. While the

incentives offered are good for developers as they can generate strong sales over the short-term, it would also

encourage more speculative buying due to availability of high leverage.

Chart 4: % change in ARP P in tandem with private consumption growth

2.4%

9.4%

-7.7%

3.9%

8.8%

-1.8%

3.4%4.2%

13.4%

4.2%

6.0%

3.8%

-3.1%

1.7%

4.7%

7.8%9.2%

12.0%

9.0%

7.2%

7.4%

3.2%

11.5%

1.3%

-10%

-8%

-5%

-3%

0%

3%

5%

8%

10%

13%

15%

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010f

2011f

2012f

2013f

2014f

ARPP Private consumption growth

Source: Property Market Report, DOS, RHBRI

Chart 5: Monthly auto TIV and Yo y growth

Source: MAA, RHBRI

Chart 6: Annual auto TIV and Yoy grow th

Source: MAA, RHBRI


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(iii) Strengthening in ringgit to spur foreign participations.We believe the direction of ringgit will also play a role in the Malaysian property market. Thus far in 2010,

MYR/USD has strengthened by about 10.5%, stimulated mainly by Bank Negara Malaysias recent liberalisation

policy for international trade purpose. The continued strengthening in ringgit is likely to attract higher foreigners

participation in the Malaysia property market, due to higher expected return from investment (eg. 4-5% rental

yield + 10% YTD currency gain). While the returning of foreigners to the Malaysian property scene is still not

prevalent at this juncture, Ireka a high-end residences developer, already saw foreign buyers coming back, as

more than 50% of the companys ongoing SENI Mont Kiara project is taken up by foreigners. We also think that,

only certain properties, such as selective high-rise residences and commercial/purpose-built buildings in certain

locations, may benefit, as the sector-wide recovery for high-end high-rise residences will still depend on the inflow

of expats, which is tied to the inflow of Foreign Direct Investments into the country. We note that over the past

few months, some foreign-based funds (ADF Tiger III and ARA Asia Dragon Fund) have also acquired properties in

Malaysia - AEON Melaka Mall and 1 Mont Kiara, showing increasing interests in Malaysian properties.

(iv) Property a preferred vehicle to hedge against inflation.Last but not least, property is always seen as a preferred vehicle to hedge against long-term inflation. Hence, the

sector will continue to be an asset reflation play. While the current inflation shown by CPI is still moderate,

according to BNMs sensitivity study, the gradual removal of subsidies would push inflation to 4% in 2011-12,

before easing to 3% in 2013. Therefore, we believe the cost-push factors would make real estate a preferred

inflationary hedge to preserve values, given limited alternative choices.

Chart 7: Current ALR is at discount t o BLR

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

%

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5%

BLR A LR Premium/(Discount) RHS

Source: BNM

Chart 8: Malaysias CPI

Source: Bloomberg

Chart 9: YTD Ringgit strengthened by 9.4%

3.00

3.10

3.20

3.30

3.40

3.50

3.60

3.70

3.80

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

RM/ USD

Source: BNM

Chart 10: Foreign direct investment in M alaysia

0

1

2

3

4

5

6

7

8

9

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

RM bn

Source: UNCTAD


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Higher land replacement cost to support property prices. Apart from the fundamental drivers fromdemand, other supporting factors that sustain property prices include increasing land replacement costs. Land

is one of the scarce resources. As developers continue to replenish their landbank, land replacement costs will

become higher, partially due also to the competitive biddings. Hence, even though building material (steel

bars, sand and cement) prices have remained stable thus far, property prices in the primary market, in

general, are likely to sustain at high levels even if developers maintain their margins. Or, it at least suggests

that, downside for property prices (in primary market) will not be overly substantial. Since early 2010, many

developers have also stepped-up their landbank replenishment effort, and therefore landbank acquisitionactivities are rather vigorous this year. Below are some recent land acquisitions by selective developers:

Table 4: Land acquisitions/proposed acquisitions by some developers over the past six months

Company Date of announcement Location Area (acres) Cost (RM m) Price psf (RM)

Mah Sing 22nd Apr 2010 Ampang 1.4 53.8 857

9th Jul 2010 Kinrara 125.8 178.4 33

9th Jul 2010 Sg Buloh 17.8 65.9 85

9th Jul 2010 Bukit Jelutong 11.0 31.8 66

Suncity 27th Sept 2010 Sg Ara Penang 80.9 38.8 11

Plenitude 27th Sept 2010 Balik Pulau Penang 52.6 40.1 18

Paramount 1st Jun 2010 Cyberjaya 50.0 78.4 36

SP Setia 9th Sept 2010 Setia Indah, JB 259.1 169.3 15

Glomac 30th Aug 2010 Cyberjaya 7.0 27.4 90

KSL 14th Jun 2010 U-Thant 0.8 25.4 713

Bolton 10th Aug 2010 Ukay Perdana 23.0 72.0 72

Note: Transaction prices could be different for the same area, depending on the tenure and type of the land, as well as plot ratio.Source: Bursa Malaysia

Chart 11: Iron and steel China export prices

0

200

400

600

800

1000

1200

1400

Aug-

07

Oct-

07

Dec-

07

Feb-

08

Apr-

08

Jun-

08

Aug-

08

Oct-

08

Dec-

08

Feb-

09

Apr-

09

Jun-

09

Aug-

09

Oct-

09

Dec-

09

Feb-

10

Apr-

10

Jun-

10

Aug-

10

US$/ mt

Source: Bloomberg


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Sector still fueled with good news on Governments development plans. Apart from the recent mulls onlowering cap on LTV, the property sector is still fueled with good news with the announcement on government

development plans. These include the 3,300-acre Rubber Research Institute land in Sungai Buloh as well as the

Sungai Besi Financial Centre. Especially the RRI land which is worth an estimated GDV of RM10bn, many

developers have shown their interest to participate in the big scale development together with EPF. We

understand that, MRCB is currently assisting EPF in drawing up the masterplan, and dividing the sub-parcels of

land. On another front, the proposed MRT lines (Red line: Kota Damansara-Golden Triangle-Serdang; Green line:

Sg Buloh-Kepong-Kg Baru-KLCC-Cheras-Kajang) will also benefit certain developers which have landbank alongthe affected areas. We gather that, a number of areas have also been identified as MRT stations in future, such

as Pusat Bandar Damansara, Dataran Sunway, 1 Utama/The Curve, Subang Bestari, Balakong, Sg Besi Financial

Centre, Matrade etc). Although the proposed MRT network will take 8-10 years to be completed, we nevertheless

think that, over the longer term, values of properties located in the selected areas will appreciate. Companies

that stand to benefit include SP Setia (KL EcoCity), Mah Sing (Icon Residence and Star Avenue), Suncity (Sunway

Velocity) and Glomac (Damansara and PJ projects).

The ability to pay a 20% dow npayment upfront

High-end properties would be more susceptible. As a rough indication (refer to Table 4), the proportion thata typical 10% downpayment to household net financial asset (financial asset minus total debt; financial assets

comprise saving deposits, unit trust funds, life insurance funds and EPF) is about 16-18%. However, if a 20%

downpayment is required, it would then make up about 32-36% of household net financial asset. Therefore, on

the surface, the impact on the property sector is rather minimal. However, there are a few caveats here: (i) The

average value of property transacted is about the range for middle-end properties but most properties that are

sold by many of the property companies under our coverage are priced at above RM500k; and (ii) Net financial

asset per household in the following table appears on the high side, as low income groups household financial

asset typically consists of only EPF and savings, and EPF makes up about 25-30% of total household financial

Chart 12: MRT network

Source: PEMANDU


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assets. As such, the proportion of downpayment to household financial net asset may not be very accurate to

reflect the impact on the property sector, once lending cap is imposed.

Nevertheless, we are of the opinion that, high-end property segment will be more supceptible (relative to other

sub-segments) to changes in lending policy, as many speculative buyings are mainly concentrated on this

segment. As lending cap is lowered, return on equity will therefore be reduced, making property investment

less attractive. In addition, we are also aware that, the current strong sales of properties priced above RM500k

are very much supported by easy financing and attractive incentives offered by developers (e.g. no payment until

completion). Hence, depending on the extent of developers ability to come out with innovative marketing

scheme, we think generally impact on high-end property segment will be relatively significant, compared to

middle and low-end housing segment.

Table 5: Ability to pay 20% dow npayment upfront if a blanket imposition is implemented

2003 2004 2005 2006 2007 2008 2009

Household debt RMm 275,176 316,158 361,029 395,466 429,483 472,088 516,559

Household financial assets RMm 595,573 790,453 856,850 977,617 1,158,805 1,107,592 1,272,380

HH financial asset to debt ratio x 2.16 2.50 2.37 2.47 2.70 2.35 2.46

HH net financial assets RMm 320,397 474,295 495,821 582,151 729,323 635,504 755,821

Growth 48.0% 4.5% 17.4% 25.3% -12.9% 18.9%

Total number of households m 5.50 5.62 5.97 5.85 5.97 6.09 6.22

Total debt per HH RM 49,996 56,236 60,504 67,601 71,976 77,506 83,048

Total financial asset per HH RM 108,207 140,600 143,598 167,114 194,202 181,841 204,563

Net financial assets per HH RM 58,212 84,364 83,094 99,513 122,226 104,335 121,515

Growth 44.9% -1.5% 19.8% 22.8% -14.6% 16.5%

Total value of property transacted RMm 23,011 29,296 28,407 28,697 36,491 41,304 41,841

No of property 164,723 195,243 181,762 176,277 199,482 216,702 211,600

Avg value of property transacted RM 139,697 150,048 156,289 162,796 182,927 190,603 197,736

Growth 7.4% 4.2% 4.2% 12.4% 4.2% 3.7%

Impact on property priced at RM 500,000

Assume 10% growth in net financial assets per HH 133,666

10%

10% downpayment 10% 13,970 15,005 15,629 16,280 18,293 19,060 19,774 50,000

% of HH net financial asset 24.0% 17.8% 18.8% 16.4% 15.0% 18.3% 16.3% 37.4%

20% downpayment 20% 27,939 30,010 31,258 32,559 36,585 38,121 39,547 100,000

% of HH net financial asset 48.0% 35.6% 37.6% 32.7% 29.9% 36.5% 32.5% 74.8%

Source: BNM, MCMC, Property Market Report, RHBRI

Key Risks for the sector

Risks. Our view is formed based on the assumption that first and second home buyers are exempted from lowerLTV ratio. However, if this is not the case, our investment thesis can be derailed. Key risks for the property sector

are: 1) Lower-than-expected cap on lending rate imposed by Bank Negara Malaysia; 2) higher tax bracket for

real property gain tax (RPGT); and 3) country risks.


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Valuations and Recommendations

Valuations still attractive. Although property stocks, on average, have done quite well in 3Q2010 (+17%), inour opinion, valuations are still attractive at the current level. While developers such as SP Setia, Mah Sing,

Glomac, and Suncity are generating record sales, P/B for many property stocks are still below their +2 stdev level

or their previous peak in 2007-08 (see Charts 15-23). We believe once the regulatory risk is cleared (pending

announcement from the authority) and if the new measures are in line with our expectations, we see the strong

potential for property stocks to outperform going forward.

Maintain Overweight. We maintain our Overweight stance on the property sector. To re-iterate, AverageResidential Property Price will continue to hold until 2012-2013, supported by: (i) Faster growing of young

demographics to drive big-ticket purchases i.e. homes and motor vehicles; (ii) Low mortgage rate as commercial

banks continue to offer discount to BLR; (iii) Aggressive promotions/incentives being offered by developers; (iv)

Stregthening in ringgit that encourages foreigners participation; and (v) Property is a preferred vehicle to hedge

against inflation. In addition, higher land replacement cost will also hold up property prices in the primary market.

Our top picks for the sector remained unchanged: IJM Land (OP, FV = RM3.00), Mah Sing (OP, FV =

RM2.06) and Suncity (OP, FV = RM5.48) .

Chart 13: SP Setias sales trend

1,413

1,235

1,431

1,652

1,795

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1,800

1,900

FY06 FY07 FY08 FY09 9MFY10

RM m

Source: Company

Chart 14: Mah Sings sales trend

509 509

727

394

727

1,020

300

400

500

600

700

800

900

1,000

1,100

2005 2006 2007 2008 2009 7M2010

RM m

Source: Company

Table 6: Valuations and key highlights fo r developers

Company Rating Fair Value Valuations Key Highlights

SP Setia MP RM4.95 In line with RNAV/share The company is well-ahead to meet its sales target ofRM2bn for FY10. Going forward, the KL EcoCity project,

which is worth a GDV of RM6bn, will be the key

development for FY11. We are positive on the project,

given the infrastructure and public transport plan in

place, as well as the full occupancy for office blocks in

Mid Valley City area. Valuations, however, are rich for SP

Setia, trading at about 2.5x P/B, close to +2 stdev level.

IJM Land OP RM3.00 In line with RNAV/share Valuations wise, we prefer IJM Land to SP Setia. GivenIJM Lands diversed range of properties and locations,

we believe the company is well-positioned to capture the

continued upcycle in the property sector. In addition, the

2,000-acre Canal City land will be the key township

development in Klang Valley for the company over a

period of 20 years. The development, which is worth

over RM4bn GDV, is likely to kick off in end 2011 or

early 2012. Over the short term, the company still has

RM700m GDV worth of projects lining up until the end of

FY11 (March 2011).


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Continue Table 6


Suncity OP RM5.48 15% discount to RNAV/share Suncity will have RM2.6bn worth of projects to be rolledout next year: (i) South Quay condo and commercial

component; (ii) Melawati garden villas; (iii) Sunway

Velocity service apartment; and (iv) Overseas projects

Jiangyin and Tianjin SSTEC project. Besides that, after

the injection of 8 properties into Sunway REIT, the

company also plans to strengthen its recurring income

portfolio by building 6 new commercial properties: (i)

Sunway SOHO and office suites; (ii) The Pinnacle; (iii)

Sunway Velocity shopping mall; (iv) Sunway Monash

University Residence; (v) Sunway Medical Cancer

Centre; and (vi) Lost World Hotel in Tambun. We believe

Suncity will unlock the values of these properties as they

are injected into the REIT over the next 3-5 years, once

tenancy is stable.

Mah Sing OP RM2.06 In line with RNAV/share New launches and landbanking effort have beenaggressive for Mah Sing. Recently, the company

proposed to raise RM325m through convertible bond,

preparing to acquire more landbank going forward. The

companys quick turnaround model has worked well.

Sales performance for recent new launches M Suites,

Icon Mont Kiara and Kinrara Residence has been

encouraging, with a take-up rate of 60-75%. Over the

next 1-2 years, Mah Sing has over RM2bn worth of

projects in the pipeline. Unbilled sales of RM1.17bn are

sufficient to underpin earnings for another one year.

Sunrise OP RM2.88 30% discount to RNAV/share In line with other developers, Sunrise has also rampedup their new launches. About RM6.6bn worth of new

projects are lining up for 2010-11, including Menara

Solaris, the Canadian project, MK20, Solaris 3, Jelutong

JV project with Sime Darby Property, Lot 149, Kajang

project and MK 22. While we are positive on other

projects, we are concerned on the take-up for its Menara

Solaris (Sunrise may opt for en-bloc sale), as office

segment is rather lacklustre in the KL city centre area.

Furthermore, given Sunrises exposure to the high-end

high-rise residences segment, we believe the impact on

its sales will be more significant once the imposition of

cap on lending rate is implemented.

YNH MP RM1.86 40% discount to RNAV/share Relative to other developers, YNH is less aggressive inits launches. Apart from its ongoing township projects in

Perak, only Fraser Residence and Kiara 163 service

apartments will be launched in 2010-11. Furthermore,

the company is still looking for an en bloc buyer for its

Menara YNH, after the pull-out of KFH 2 years ago.

Landbank turnaround is therefore rather slow, and hence

the stock is justified for a higher discount to RNAV.


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Continue Table 6


Paramount OP RM5.80 35% discount to RNAV/share Paramount is attractive for its yield angle, which isamplified by the recent disposal of Jerneh Insurance

Bhd. Even at our current DPS forecast of 29 sen for FY10

before including a special dividend, the yield is already

at about 7%. To re-iterate, proceed from the disposal

translates into a cash per share of RM1.08. Hence, in

addition to our FY10 DPS forecast, assuming a 30 sen

special dividend is paid, this would translate into a

generous yield of 14%. The company is also

strengthening its property development going forward,

pending the completion of its acquisition of landbank in

Cyberjaya and Glenmarie. As for its education division, a

new international school will be set up. Upon opening in

Sept 2011, it will have a capacity of 600 students with

an estimate fees of RM25-30k p.a., translating into an

additional earnings of about RM3m p.a.

Glomac OP RM1.72 30% discount to RNAV/share Unbilled sales for Glomac remained high at RM585m,giving one year of earnings visibility. Looking ahead,

about RM521m worth of projects will be rolled out

progressively in FY11. The impending one would be

Glomac Damansara service apartments (GDV RM385m),

pricing at about RM600 psf. Beyond FY11, there is still

RM2bn worth of projects in the pipeline. The company

has also recently acquired another piece of 7-acre land

in Cyberjaya, to expand its landbank for Glomac

Cyberjaya. Landbanking effort is likely to continue.

Hunza MP RM1.58 50% discount to RNAV/share New launches are rather slow for Hunza, as compared toits peers. Apart from its ongoing Gurney Paragon

project, Hunza is bringing forward Alila II (GDV

RM300m) to end 2010, from 3Q11 previously.

Meanwhile, the low-cost component for the Bayan Baru

land is likely to kick off in end 2011.

Chart 15: Forward P / B for SP Setia

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1.0

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Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

Average P/B = 1.65x; +2 stdev = 2.62x; -2 stdev = 0.68x

Source:Bloomberg, RHBRI

Chart 16: Forward P/ B for IJM Land

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Source: Bloomberg, RHBRI


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Chart 17: Forward P/ B for Suncity

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Chart 18: Forward P/ B for Mah Sing

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Chart 19: Forward P/ B for Sunrise

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Chart 20: Forward P/ B for YNH

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Chart 21: Forward P/ B for Paramount

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Chart 22: Forward P/ B for Glomac

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4 October 2010

Page 13 of 13

IMP ORTANT DISCLOSURES

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This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives ofpersons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluateparticular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategywill depend on an investors individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability forany loss or damage arising out of the use of all or any part of this report.

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This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflectinformation known to, professionals in other business areas of the Connected Persons, including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based uponvarious factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or moreover a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higherrisks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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Chart 23: Forward P/ B for Hunza

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property sector update : still in hot flavour - 04/10/2010

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