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Property stocks may now be in favour? Value vs price.

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If we love property but we think we need to save more before buying one, how about using some of that savings to buy the property developers instead? It does not need to be RM50,000 downpayment in this case because buying 1,000 units of S P Setia Berhad will need just RM2,160. Based on an average target price of RM3.53 from analysts, there is a potential upside of 63.43 percent. Here’s that reference from i3investor.com This is a very good site where stocks are concerned. It tells everything about stocks and it’s possible to read lots of funny comments too. Beyond just one listed property company, the KL Property Index (KLPI) is actually lagging the Bursa Malaysia’s performance to date.

An article in TheStar tells just that. KLPI is now at a seven-year low. The valuations of property stocks have become rather attractive as they trade at multi-year lows, especially among the larger capitalised listed players. Within the KLPI, there is a total of about 100 companies in the index and some 18 of them are deemed to be large capitalised companies with market capitalisation of RM1bil and above. Within today’s weak demand scenario, there are 16 out of the 18 top listed properties companies which are trading at prices below even their respective book values and this is way off their respective RNAV levels. (Click here to understand what is RNAV)

This is not all. Most of these stocks are profitable and in terms of net gearing level (except for two) are between 3 to 80 percent. As usual, the stronger players in terms of balance sheet strength, judged by low net gearing or net cash, tends to trade at a higher price-to-book multiple while weaker net gearing companies tend to trade at lower multiples. Some of these companies are owned by institutions like PNB or Khazanah or the very least supported by strong individuals or institutions. This is why even though the market sentiment is causing the prices to be suppressed, the current valuation looks rather attractive for value buys for investors. In fact, some of these beaten-up large capitalised property related companies are now at bargain levels. Here’s that article in TheStar for reference. 

Happy identifying that particular developer company you like and research about them. Their stock price may already be below the value of their developments and land. In other words, when we buy their stocks, it’s going to be very safe because it’s backed by physical assets. Buying these counters are not the same as buying into an online based company. The potential growth for those are many times faster than that of property developer stocks. However, the risks are also higher because the stocks have no physical assets to back it up; which could be sold and easily valued. Cheers.

written on 20th Oct 2018

Next suggested article:  Be like the rich. Stop saying these things.

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