CGS-CIMB on Friday (Apr 22) downgraded Thailand’s property development sector to “neutral” from “overweight”, as more macroeconomic headwinds could negatively affect property demand and net profit growth outlook.

The prolonged Russia-Ukraine war could weigh on the country’s economic recovery, as well as negatively affect consumer sentiment and purchasing power, especially for low-income earners, the research team said in a report.

CGS-CIMB also believes the sector’s current valuation – a price-to-earnings ratio of 10.2 times for its FY2022 forecasts – has priced in better core net profit growth in 2022-2023. It sees limited room for upside.

The valuation is also seen as reasonable, as the research team expects Thailand’s developers to register a core earnings per share compound annual growth rate of 10.1 per cent over 2021 to 2024.

Low-rise housing in the mid-to-high-end segment remains a “bright spot” for CGS-CIMB. It expects low-rise housing to be the key net profit driver for the residential property segment in 2022, supported by growing demand.

The research team’s top picks are Land and Houses, Origin Property and Supalai. CGS-CIMB has an “add” call on all 3 counters, with respective target prices of 10.80 baht, 14.50 baht and 25.25 baht. These developers have large exposure to mid-to-high-end low-rise housing.

“We expect Land and Houses to be the most resilient in our coverage given its minimal exposure in the low-end segment,” said analyst Pornthipa Rayabsangduan.

CGS-CIMB believes these developments will be the main beneficiaries of the relaxed loan-to-value requirements and “still low” interest rates. But, any weakening of Thailand’s economic outlook due to the Russia-Ukraine war could soften gross domestic product growth and property demand.

If the research team’s GDP (gross domestic product) growth forecast for 2022 is downgraded to 2.1-3 per cent from 3.3 per cent, its 2022 residential revenue projections will drop by 4-16 per cent. Core net profit forecasts will also slide by 3.5-13.3 per cent.