The Property sector aggregate net income grew by 31% year-on-year (y-y) with SMPH and ALI outperforming. RLC and MEG were also slightly ahead of expectations. Top line growth (+15% y-y) was robust driven by malls (+30% y-y) and resi (+14% y-y) while office (+6% y-y) remained tepid.<\/p>\n\n\n\n
Improved bookings and easing cancellations drove revenue recovery. Pre-sales were mixed as they grew 10% y-y for 2023 but momentum slowed down in 4Q23 at -12% y-y\/-13% q-q. Launches will be managed given high unsold stocks. ALI and RLC are more positive on the luxury segment while SMPH is focusing more on the mid-to-low income segments<\/p>\n\n\n\n
Sustained improvement in occupancy, foot traffic and tenant sales continued to drive revenue growth for malls. But the high-base effect led to normalizing pace of growth in 4Q 2023. We see further upside on average occupancy but GLA expansion will are still calibrated to cater to changing consumer preferences. The scheduled renovation of select malls could also impact revenues over the short term<\/p>\n\n\n\n
Lower occupancy rates (due to cancellations from POGOs and BPOs) and deferred GLA expansion continued to weigh down on revenues. We see limited upside surprise for this segment as developers are likely to remain on wait-and-see mode given still high vacancy rates (19.3% system-wide)<\/p>\n\n\n\n
ALI and RLC remain our sector top picks. The sector\u2019s risk-reward profile looks attractive given undemanding valuations, positive EPS revisions, and strong earnings outlook. We forecast sector EPS growth of 12% and 12.5% for 2024-2025. <\/p>\n\n\n\n
The switch from Banks to Properties that we have been anticipating hasn\u2019t panned out yet as the narrative about interest rate cuts seem to be losing some momentum recently given renewed uptick in local inflation rate and mixed views on the Fed rate. <\/p>\n\n\n\n
Also, given much better (trading) liquidity and higher weight on the local index (21.1% of the index), investors have turned to the Banks to gain exposure into the Phils market. But the factors highlighted above (positive earnings revisions and cheaper valuation) should eventually come into play as the rhetoric on easing rates pick up. <\/p>\n\n\n\n
Also, the Banks are looking more crowded now given the sustained net
foreign inflows into the sector over the past few months (while foreign buying into the Properties have been limited so far to just ALI).<\/p>\n\n\n\n