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KUALA LUMPUR (April 16): CGS International has maintained its 'neutral' rating on Malaysia’s property sector, citing a lack of major near-term catalysts despite a constructive outlook on industry fundamentals.
In a sector note on Thursday, the research house said it remains upbeat on the industrial property segment, which continues to benefit from structural demand growth and increased enquiries from data centre players.
The firm noted that developers with high industrial exposure such as Sime Darby Property Bhd (KL:SIMEPROP) and Eco World Development Group Bhd (KL:ECOWLD) are well positioned to ride this growth, with both companies consistently deriving 30% to 40% of their sales from industrial parks.
“The companies remained upbeat on industrial properties and aim to further grow the segment,” CGS International said, highlighting potential upsides from trade diversion and shifting regional dynamics that make Malaysia a viable alternative for global players.
Under recent developments, Sime Darby Property is moving to expand its industrial footprint through upcoming joint ventures with SD Guthrie Bhd (KL:SDG) to add approximately 5,000 acres of industrial land.
Meanwhile, Axis REIT (KL:AXREIT) has set a target to double its assets under management to RM10 billion by 2030.
While the industrial segment is thriving, CGS International flagged concerns over potential margin compression driven by higher diesel costs and building material prices.
While management teams suggested that the impact on ongoing projects is manageable due to locked-in lump-sum contracts, the research house warned that risks remain skewed towards new launches where construction contracts have yet to be awarded.
The research house's top sector pick remains EcoWorld ("add"; target price/TP: RM2.62), supported by its robust earnings trajectory for the financial year ending Oct 31, 2026 (FY2026)-FY2028, opportunistic land monetisation, and attractive dividend yields.
It also favours Sime Darby Property ("add"; TP: RM1.95) for its balanced sales mix across residential and industrial segments, alongside growing recurring income from data centre ventures.
CGS International added that while the sector currently trades at valuations roughly 1.0 standard deviation above its 10-year mean, there is potential for further valuation expansion in 2026.
This could be triggered by catalysts such as the monetisation of real estate investment trusts, additional land sales, or stronger-than-expected property sales. However, downside risks include unexpected hikes in the overnight policy rate (OPR) and a pullback in favourable housing policies.
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