Fund buys property stocks at cheapest level in 7 years

Malaysia’s top-performing fund is buying the nation's property companies after a slump in shares left valuations at their cheapest level in at least seven years relative to global peers.

Eastspring Investments Bhd has started “nibbling” on some of the stocks that have been beaten down on the prospect the real-estate industry will eventually recover, Chen Fan Fai, the Kuala Lumpur-based chief investment officer, said in an interview.

He declined to identify the companies he's buying. The Bursa Malaysia Property Index is valued at 8.9 times 12-month projected earnings, a 32% discount to the Bloomberg World Real Estate Index.

Chen's optimism offers a rare bright spot in a stock market whose value has slumped 14% this year as international investors unloaded Malaysian equities amid the political turmoil, falling oil prices and a selloff in emerging-market assets.

The FTSE Bursa Malaysia KLCI Index has dropped 2.5% so far in 2015, set for its second year of declines, the longest losing streak in 17 years.

“We don’t expect them to perform in the next few months, but valuations have come to a point that it is worthwhile to start buying,” said Chen, whose small-cap fund has beaten 90% of peers over the past three years with an overall return of 31%, according to data compiled by Bloomberg.

The property gauge of 92 developers on the Bursa Malaysia slid 0.2% at the close.

The measure has tumbled 14% in the past 12 months, the worst performing industry group, as record household debt, a consumption tax and stricter lending hurt buyers’ ability to purchase homes.

Among developers, UEM Sunrise Bhd, whose stock has fallen 29% in the past year, is trading at 13.7 times projected 12-month earnings, below its five-year average of 27, Bloomberg data show. The stock climbed 1.7% yesterday.

Mah Sing Group Bhd, down 23%, is trading at the cheapest level in more than two years. SP Setia Bhd, Malaysia's biggest property developer, has a multiple of 11.7, near the lowest level since 2006.

Not everyone is buying. Jason Chong, the Kuala Lumpur-based chief investment officer at Canada's Manulife Asset Management Services Bhd, said the industry was facing too many headwinds.

SP Setia, UEM Sunrise and Mah Sing said in e-mailed interviews that the property outlook remained “challenging” and that the subdued demand will spill into next year.

“Weaker sentiments as well as difficulties obtaining end financing approval have impacted sales for the year,” Ng Chai Yong, chief executive officer of Mah Sing, wrote in an e-mailed response to questions.

The company has increased its marketing activities this year while slashing its new property launches by almost half, he said.

Some developers say selling lower-priced products have helped them weather the slowdown.

Datuk Khor Chap Jen, acting president and CEO for SP Setia, said that its mid-priced range product this year had been “very successful” and will help it achieve its 4 billion ringgit sales target this year.

The company’s single-story bungalow project last month achieved a 70% take-up rate in one weekend, he wrote in an e-mail.

“The property cycle comes and goes and eventually it will pick up,” Eastspring’s Chen said. “There aren’t many screaming opportunities in the market right now.

What we look for are beaten down stocks that are still with sound fundamentals,” he said. – By The Star