ECM Libra remains neutral on the property sector as it sees insufficient impetus for a property bull run at the current juncture. However, it upgraded valuations for all but one of the property stocks under its coverage as it reckons the decline in property sales “has hit a bottom and is recovering steadily going forward”.

“We previously valued property stocks using RNAV (revised net asset value) or book value due to uncertainty in sales as well as declining margins arising from higher building material prices. However, we are now reverting our valuation methodology to PER (price-to-earnings) multiples to reflect earnings expansion going forward,” ECM said in a report yesterday.

Among other things, residential property sales have improved since hitting a bottom in January, it said, citing the turnaround in residential property loan approval to positive territory on a year-on-year basis in March and April.

This, it added, was further supported by better-than-expected sales by S P Setia Bhd, which secured about RM700 million new sales since the introduction of its 5/95 home loan package in January. Sime Property also reported decent sales with RM850 million secured from its latest Parade of Homes campaign launched early March.

Similarly, Sunrise secured over RM300 million sales bookings from its 11 @ Mont’Kiara and Residence @ Mont’Kiara projects following the introduction of a 10/90 financing scheme since mid-March that came with a two-year post completion zero payment plan.

“Once the sales and purchase agreements are signed, these new sales bookings will further boost its existing unbilled sales of RM965.4 million, which will underpin Sunrise’s earnings over the next two years,” ECM Libra said.

While non-residential property loans were still in negative territory, the absolute value of loan approved “did perk up since hitting a bottom in January 2009”, ECM Libra said.

“Going forward, we expect property sales to recover steadily to its ‘normalised level’. Downside risk should be minimal for the Malaysian residential property market due to absence of asset bubble, with the exception of high-end condominiums. The interest rate environment also supports property buying or investment activities,” it added.

With improving sentiments and taking an asset reflation investment angle for the property sector, ECM Libra ascribed an upper-mid cycle PER of 15 times on S P Setia’s FY2010 earnings and used a 10 times multiple for mid- and small-cap property stocks.

It revised upward target prices for all the property stocks under its coverage, with the exception of YNH PROPERTY BHD [ YNHPROP  1.800  -0.010 (-0.552%) ], whose target price was cut by 19% due to its slower realisation of its RNAV surplus into actual earnings.

ECM Libra reaffirmed its buy recommendation on SUNRISE BHD [ SUNRISE  1.890  0.010 (0.532%)] and SUNWAY CITY BHD [ SUNCITY  3.060  0.020 (0.658%) ], raising the respective target prices to RM2.85 and RM3.60 from RM2.17 and RM2.96 previously.

“We continue to like Sunway City for its resilient property investment earnings while there is potential upside from its property development earnings as it recovers going forward. For pure property development play, we also like Sunrise due to its strong brand name and prime landbank,” ECM Libra said.

Despite a higher target price of RM2.80 from RM2.38 (30% discount to RNAV of RM3.41), ECM Libra retained a sell call on S P Setia as it believed the latter’s share price “had run well ahead of its fundamentals”.

ECM Libra raised its recommendation on GLOMAC BHD [ GLOMAC  0.930  -0.010 (-1.064%)] to a buy from hold and doubled its target price to RM1.03 from 62 sen (65% discount to RNAV of RM1.79) while YNH Property Bhd was cut to hold with a lower target price of RM1.81 using 10 times earnings multiple from RM2.02 previously, based on a 40% discount to its RNAV of RM3.36.

“There is even sign of hope for an imminent property bull run judging by the run-up in S P Setia share price. However, one must not lose sight of the fact that time is required for wealth destroyed by the economic downturn to be rebuilt and for household income growth to resume before the property sector can find some impetus for the next bull run. As such, we are maintaining our neutral call on the sector,” ECM Libra said.

At yesterday’s closing bell, Sunrise fell six sen to RM1.68; Sunway City eased 10 sen to RM2.56; Glomac was flat at 72 sen; YNH Property added three sen to RM1.69 while S P Setia rose six sen to RM3.90.