CIMB Equities Research is upbeat about the prospects for Penang Properties and maintained its trading buy call on the sector and all the developers under its coverage. The recent pullback in share prices in the wake of the unexpected 5% real property gains tax (RPGT) levy provides a buying opportunity, it said in a research report today.
"Catalysts for the sector include better-than-expected sales from Penang projects; the strong stock market performance over the past six to seven months, and economic recovery from 4Q09," it said. It said Invest Penang, the state's investment agency, disclosed during a briefing that the state planned to invite proposals for the development of five parcels of land, four of which are on the island and one on the mainland.
"We understand that big developers including SP Setia and Mah Sing are showing keen interest in some of the strategically located landbank. Their participation in these projects will not only help accelerate development in Penang but could also be a significant share price catalyst if pricing is fair," it added.
The research house also said IJM Land and Mah Sing had big ambitions to build new commercial centres in their projects. IJM Land’s 152-acre The Light project has a plot ratio of two times, meaning that it can build 13 million sq ft of space on reclaimed land north of the Penang Bridge.
Mah Sing’s Southbay project S Pans 34 acres and the group is looking into the feasibility of reclaiming an additional 20 acres to 50 acres of land near the Second Penang Bridge. With a plot ratio of three times, the group could build up to 11 million sq ft of commercial space. However, CIMB said it was somewhat cautious about the outlook for commercial space in Penang because of its smallish population and the fact that its office and retail occupancy rates are among the lowest in Malaysia.
As for the residential sector, it said the outlook was still strong. It was more optimistic about the prospects for landed residential property on the island or even seafront condominiums. Residential property prices have gone up significantly in recent years due to supply constraints and the influx of Klang Valley developers. The high quality and exciting property products offered by these aggressive developers will not only attract upgraders from Penang, but also buyers of holiday homes from Kuala Lumpur, Singapore and Hong Kong, CIMB Research said.
"E&O and IJM Land have significant future supply of seafront condos on reclaimed land and would be the prime beneficiaries of robust demand. E&O’s Seri Tanjung Pinang project has a gross development value (GDV) of RM13 billion to RM15 billion while IJM Land’s The Light has a GDV of RM5.5 billion. SP Setia and Mah Sing are aggressively scouting for more landbank on the island to increase their exposure there," it said.
CIMB Research said for exposure to the Penang property market, Hunza Properties was the purest play while E&O has the largest landbank and sales potential. IJM Land has the second highest GDV exposure in Penang while news flow on landbank acquisitions could be strongest from S P Setia.
"For investors who are bullish about commercial developments on the island, IJM Land and Mah Sing are the most aggressive. However, if demand for commercial property is really so strong, there is nothing to stop E&O from directing more of its Seri Tanjung Pinang land towards that usage and maximising its plot ratio of two times as well," the research house said.