KUALA LUMPUR: CIMB Equities Research has upgraded Mah Sing to Add and retained Eco World as its top pick among the property developers.

In its research note on Tuesday, it advised investors to stick to developers with strong execution or sizeable exposure to mass market and township projects, which should benefit from the recovery trend. 

“We upgrade Mah Sing to Add as its excellent execution could help it outperform smaller peers in terms of sales. We retain Add calls on Eco World, UOAD and LBS as their sizeable exposure to mass market properties could raise their sales despite the tough environment. A sudden economic shock is the key downside risk to our sector call,”  it said.

CIMB Research remained Overweight on the property sector as it thinks the property developers are undervalued and the sector’s fundamentals are better than perceived by many.

“We project a gradual but uneven recovery in property sales with mass market high-rise and township properties to sell better than high-end high-rises.

“Developers that may benefit from this recovery trend are Eco World, LBS, Mah Sing, SP Setia and UOA Development. Eco World is our top pick for the sector.

“Stronger sales in 2016 are the key potential re-rating catalyst,” it said.

At 0.8 times price-to-book value (P/BV), the property sector’s valuation is higher than the trough of 0.7 times seen during the financial crisis in 2008/09 but at a 30% discount to its 10-year average of 1.16 times. 

The sector’s cheap valuations reflect concerns about the oversupply of properties, affordability issues and strict lending standards. However, it believes the sector’s fundamentals are not as dire as many perceive and, barring an economic shock, property sales could recover in 2H16.