Overview: Refocusing on Fundamentals and Execution Strength

The property sector in Malaysia is poised for a transformative year in 2025, driven by refocusing on fundamentals and execution strength. The third-quarter earnings for 2024 included significant one-offs primarily driven by land sales. The highly anticipated announcement of the Johor-Singapore Special Economic Zone (JS-SEZ) details has been postponed to January 2025, further extending the timeline from December 2024. Looking ahead, the sector is expected to remain anchored around themes such as Johor’s JS-SEZ, data center developments, and corporate exercises aimed at enhancing company value through asset crystallization initiatives.

The sector has been downgraded to NEUTRAL from POSITIVE, as most thematic drivers have been in play for some time with no new themes emerging. Top recommendations include a BUY on SP Setia Berhad (SPSB) and Sime Darby Property Berhad (SDPR).

Company Performance Analysis

SP Setia Berhad (SPSB)

SP Setia Berhad (SPSB) delivered results in line with expectations for the third quarter of 2024. The company is on track with its FY24 earnings target. SPSB’s land sales in the nine months of 2024 amounted to MYR480 million, and earnings are expected to normalize in the fourth quarter. The company is finalizing its Tanjung Kupang industrial park joint venture by the first half of 2025. Investors are advised to consider SPSB’s undemanding valuation and the potential REIT-ing of its investment properties, which could reduce its debt level further. The recommendation for SPSB is a BUY.

Sime Darby Property Berhad (SDPR)

Sime Darby Property Berhad’s core earnings exceeded forecasts, driven by higher margins. SDPR also surpassed its internal sales targets for the year, leading to an upgrade to BUY from HOLD. The company secured a new 20-year lease with Google for its Elmina Business Park. With exposure to industrial parks and data centers, SDPR is positioned to benefit from the booming industrial activities. Its stable landed property segment and recurring income from investment properties further support its growth. The recommendation for SDPR is a BUY.

Sunway Berhad (SWB)

Sunway Berhad’s core earnings exceeded expectations, benefitting from lump-sum profit recognition from a Singapore project. The company is on track with its FY24 earnings target. SWB plans to list its healthcare business and investment properties, which could anchor its 2025 performance. Despite its strong performance, SWB has been downgraded to HOLD due to limited upside potential. The recommendation for SWB is a HOLD.

UEM Sunrise Berhad (UEMS)

UEM Sunrise Berhad’s earnings were in line with expectations, supported by non-core land sales. The company is a major landowner in Iskandar Malaysia, with strategic landbank totaling 4,783 acres. The JS-SEZ theme is expected to provide a tailwind for UEMS, potentially positioning it as a dark horse in 2025. However, execution challenges and high investor expectations remain key risks. The recommendation for UEMS is a HOLD.

Tambun Indah Land Berhad (TILB)

Tambun Indah Land Berhad underperformed due to delays in project launches, falling short of its sales targets. Consequently, TILB’s earnings outlook has weakened, and its FY24 sales assumptions have been cut by 41%. The company has been downgraded to HOLD. The recommendation for TILB is a HOLD.

Eco World Development Group Berhad (ECW)

Eco World Development Group Berhad’s results were in line with expectations. The company has secured reputable data center operators for its Quantum Edge business park in Kulai. With a healthy balance sheet and proven track record, ECW is actively seeking new landbank opportunities in Johor and Klang Valley. The recommendation for ECW is a BUY.

Eco World International Berhad (ECWI)

Eco World International Berhad’s earnings were below expectations, with results pending announcement in December 2024. The company faces challenges in meeting its sales targets but remains a player in the international property market. The recommendation for ECWI is a HOLD.

Conclusion

While the Malaysia property sector holds promise with upcoming developments such as JS-SEZ, data centers, and corporate exercises, these positives are largely priced in. Investors should remain selective, focusing on companies with solid fundamentals, proven track records, and growth prospects. Key stock picks include SPSB for its valuation and strategic initiatives, SDPR for its industrial and data center exposure, and ECW for its market position and management capability. Risk factors to consider include potential policy changes, economic outlook, and rising costs.