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Nomura and RHB, their likes and downgrades.

Posted in Equity / Stock

In this article you will learn a lot about some stocks you can buy and some stocks you may want to think twice before buying. As reported in a local English daily, below is a summary. The research is by Nomura Research as well as RHB Research. First of all, I do not own any property stocks currently. The very last one I bought was a few years ago but I sold it off after 6 months for a profit of less than RM200. Haha. However, if there are any property stocks in Malaysia which is said to be ASEAN’s top pick, I must write and share, just in case some of you missed this. According to Nomura Research’s ASEAN property yield picks, Mah Sing Group Bhd is their top pick because of above-average yields and dividend growth in 2015 and 2016. It’s ranked top out of 28 property stocks and REITS in the region. Basically, the 2015 forecast dividend yields MUST be higher than the market’s as well as the sovereign 10-year bond yield, and that the dividend per share (DPS) or unit (DPU) is projected to grow faster than the market in 2015 and 2016 forecasts. In short, if you are looking for a stock which will give you higher returns compared to the overall average market yield, then Mah Sing is your top pick.

Okay, next stock you can think of would be the Sunway Reit. It fulfills the two conditions above BUT, it’s current share price has already factored in this growth. In short, it’s fully valued and unless its DPS and DPU were to change, there should not be any further upside to the stock price. In comparison, Nomura said the Singapore REITS it covered has a DPU growth in 2015 and 2016 of 1.5% to 1.6%

RHB Research downgraded the Malaysian property sector to “neutral”. This is because property transaction volumes would continue to decline in 2015 even versus 2014! Yes, another 3% – 5% down. Two major reasons would be a slower growth and a high loan rejection rate. I like the fact that the loan rejection is high. I think this would put the pressure on the buyers to buy more within their means and when developer’s could not sell, at least they will think of ways to reduce the price further, somehow. Perhaps more freebies? It expects the property prices to be stagnant and it said it would be tough for developers to pass any incremental costs to the consumer. This is without any doubt because the current margins of the developers would still allow them room to absorb some minor increase or even to sell at a more attractive price by lowering their usual profit margin. Not all are bad. RHB likes Tambun Indah Land and it maintains a ‘BUY’ call on it. Next few companies were all downgraded. Eastern & Oriental, UEM Sunrise and UOA Development downgraded to ‘neutral’ with respective target prices of RM2.27, RM1.65 and RM1.84 respectively.

Oh yeah, why I do not have any property stocks today? Property stocks are cyclical in nature. The margins and the upside is also quite a certainty. Thus, if you seriously want a very stable dividend from stocks, get REITs instead. If you love Mah Sing, research all their projects, buy one which meets your expectations. These are the two reasons why I no longer own any property stocks. No right or wrong. Just personal preference. Nomura and RHB Research loves them enough to recommend them too. If they make sense, buy and reap the potential rewards in future.

written on 17 December 2014

Next suggested article: Overweight on property sector – buy property stocks now?

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