Welcome to my first posting for the year.

In view that property-related stocks have fallen significantly (as per Bursa property index, shown below), is it the right time to consider investing in Malaysian property stocks?

0020I.si2.5Y.weekly.png

The straight and simple answer is “not quite there yet“. Recent news suggest that we have yet to reach the bottom.

The National Property Information Centre (Napic) recently published data showing a total of RM19.54 billion (US$4.6 billion) worth of unsold properties to date.

The centre said by the third quarter of the year, the nation saw an increase in 30,115 units that were unsold, compared to the 20,304 units in the same period last year.

https://asiancorrespondent.com/2018/12/whats-behind-malaysias-worsening-property-glut/

Desperate developers slash prices as property glut worsens

https://www.themalaysianinsight.com/s/122262

BNM: Property glut persists, worsening for home units

https://www.malaymail.com/s/1676539/bnm-property-glut-persists-worsening-for-home-units

Let’s look at the recent financials of major developers in Malaysia. I will zoom into three financial metrics:

  1. Revenue – highlights the extent of decline in quarterly revenue
  2. Operating cashflows (before / after changes in working capital) – cashflow is the “heart” of a business
  3. Net debt – if there is drop in revenue / operating cashflow – we want to see how much increase in debt in order to meet the company’s liquidity requirements

Revenue

Most developers (if not all) have shown a decline in quarterly revenue since H2 2016. Both Matrix Concepts and KSL appear to be quite resilient from a revenue perspective.

Revenue - by property.png

Overall, the total revenue by the selected developers have dropped since H2 2016:

Revenue by Total.png

Operating Cashflows 

Most developers (if not all) have shown a decline in quarterly operating cashflows since H2 2016. Again, both Matrix Concepts and KSL appear to be quite resilient from a cashflow perspective.

QCF_by developers.png

Overall, the total quarterly cashflows by the selected developers have dropped significantly (to negative) since H2 2016 (although slight improvements in recent quarter):

Total CF.png

Net Debt

Most developers (if not all) have shown an increase in net debt position since H2 2016. There was one-off major increase in IOI Properties in 2017 but the company has since maintained a stable net debt position. Again, both Matrix Concepts and KSL appear to be quite resilient from a capital structure perspective

Debt by Dev.png

In tandem with overall decline in revenue and operating cashflows, the total net debt by selected developers have increased significantly since H2 2016:

Debt by Total.png

In conclusion, the property sector does not appear to be out of the woods yet. Niche developers such as Matrix Concepts and KSL appear to be resilient against the general weak trend in the sector.

Note: The above financial data is extracted from Shareinvestor.com

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