Property developers on softer ground

Kuala Lumpur: Property companies' earnings growth in fiscal 2012 will be affected by lower sales, analysts warn.

Property developers are revising their sales target because of the gloomy outlook, especially in international markets.

Companies such as Berjaya Land Bhd, SP Setia Bhd and Gamuda Bhd may be in for some choppy times, given their exposure to the property sector in Vietnam, analysts added.

"They were bullish on their sales target but people on the ground may have provided new insights on how the market in Vietnam will perform," an analyst with a foreign research house told Business Times.

The property market in Vietnam has been suffering from the tightening of monetary policy and high lending interest rate.

Also, foreign investors remain in a cautious mood due to domestic economic problem as well as gloomy outlook of global economics.

A construction analyst from MIDF Research said Gamuda may be cutting its sales target after taking into consideration the combined factors.

"We had a 'buy' call on Gamuda with target price of RM4.68. However, looking at the weakening market condition, we are relooking our target price with a downward bias," the analyst said.

Gamuda, a construction and engineering group, has two projects in Vietnam, namely Gamuda City, a 200ha mixed township which is expected to rake in a gross development value (GDV) of US$9 billion (RM28.6 billion) over nine years, and Celadon City.

Celadon City is expected to generate RM5.5 billion in GDV over nine years. The project is slated for launch in the current quarter.

Gamuda initially was aiming for RM2.8 billion in property sales for fiscal 2012, expecting RM1.5 billion from Vietnam and the rest from local property projects. But it has more than halve its property sales target in Vietnam to RM650 million.

The MIDF analyst expects Gamuda to start recognising earnings from the property sales in Vietnam from 2012 onwards.

For the first nine months of its current financial year ending April 30 2011, Gamuda posted a net profit of RM116.6 million, 40 per cent more than the same period last year.

The stock has fallen 23 per cent between August 1 and September 22 this year.

Gamuda's stock rating was cut to "hold" from "trading buy" at ECM Libra Capital Sdn Bhd to reflect concerns over the company's "exposure" to Vietnam's property market.

By Business Times