The research house added that SP Setia Bhd, which dominates the Klang Valley and Johor property sector, remains its core holdings.
CIMB Research also said that it is bullish on Penang developer Eastern and Oriental Bhd (E&O), noting that residential property prices in Penang have enjoyed higher appreciation over the past 20 plus years than the average in the Klang Valley and Johor.
"We are bullish about E&O and consider it to be undervalued. The stock is trading at a 45 per cent discount to our fully diluted revised net asset value (RNAV) per share of RM2.82," analyst Terence Wong wrote in the report.
"E&O remains 'outperform' in our books with an unchanged target price of RM1.98, which is based on a 30 per cent discount to RNAV," he wrote in the report.
Wong added that a potential re-rating catalyst for the sector includes a pick-up in merger and acqisition (M&A) activities, continued robust sales, landbanking exercises and accelerating earnings growth.
The research house also said it is not surprised that the M&A theme is resurfacing as it is becoming increasingly difficult to acquire decent landbank in the Klang Valley and Penang Island as developers hoard land and are aggressively bidding for strategic parcels.
"For Klang Valley, the population has grown to nearly seven million and development has spread as far south of Kuala Lumpur as Cyberjaya. Penang, being an island with a hilly centre and underdeveloped west coast, also limits the availability of land for development," said Wong.
By Business Times
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