'Pockets of opportunities'in Malaysian property sector

HwangDBS Vickers Research Sdn Bhd said the near-term outlook for the Malaysian property sector is likely to remain weak as more bad news surfaces.

"While we wait for a broad sector recovery, pockets of opportunities (still) exist in the form of mergers and acquisitions (M&As), privatisations and land deals," its analyst Yee Mei Hui wrote in a note to clients on Friday.

She said given the huge share price discounts, property developers might be better off taking equity stakes rather than buying landbank outright.

"Aside from financing and regulatory approvals, the usual M&A issues (pricing, control, synergy) would need to be ironed out, but these could prove less challenging when dealing with cash-strapped sellers."

She said companies with potential for corporate developments would be those with prime assets, rich listed parents, and bombed-out valuations such as MK Land Holdings Bhd, Eastern & Oriental Bhd, Sunway City Bhd, Selangor Properties Bhd.

Yee said major shareholders might also take the opportunity to privatise under-valued counters with poor liquidity, at much lower cost and with higher chance of success.

Privatisation exercises in the sector have picked up since 2005, offering investors a decent 20 per cent average premium.

She said potential candidates would be those with:

* rich listed parents who have flexibility to offer cash and/or share swap such as Shangri-La Hotels (M) Bhd, Guocoland (Malaysia) Bhd and DNP Holdings Bhd, but their overseas-listed parents could complicate share swap transactions;

* rich listed parents who have flexibility to offer cash and/or share swap such as Shangri-La Hotels (M) Bhd, Guocoland (Malaysia) Bhd and DNP Holdings Bhd, but their overseas-listed parents could complicate share swap transactions; * history of privatisation attempts like Selangor Properties; and,

* history of privatisation attempts like Selangor Properties; and, * under-appreciated prime assets.

* under-appreciated prime assets. "We remain cautious on the (property) sector for now, given the weaker sector outlook, and prefer property asset owners over developers due to their more defensive earnings," she said.

Her top property stock pick is KLCC Property Holdings Bhd, and top sell is SP Setia Bhd due to its rich valuation (14.6 times fiscal year 2010 forecast price/earnings).

BTimes