Amcorp Prop will suffer a completion delay for a major London project.

KUALA LUMPUR: Affin Hwang Capital Research has downgraded Amcorp Properties to Hold on the back of expected project delays and uncertainties ahead due to Brexit.

The research house said on Friday Amcorp Prop will suffer a completion delay for a major London project, leading it to cut its FY17 earnings forecast by 28%.

Although this event was merely a timing issue, Brexit on the other hand posed a real demand risk ahead, it said.

Amcorp Prop’s ongoing development at Campden Hill, in Kensington, London, has been slightly delayed.

“We understand that there were some conflicting views over the materials to be used for finishing which halted work.

“The contractor had thus sought an extension of time and the 72 unit project which comprises four blocks is now only expected to be partially completed in Feb 2017, as opposed to late 2016 earlier, and the remainder only in March 2017,” it said.

This means that the recognition of portion of profits will fall into the subsequent financial year, as the handover of keys for the second phase would likely happen only in April 2017, it added.

In view of the current headwinds and increased risk, the research house raised its discount to revalued net asset valuation (RNAV) for the property segment from 30% to 60% and cut its target price to RM0.89 from RM1.54.

Affin Hwang Research said it estimates that the implied discount to the property segment’s RNAV is closer to 63% currently and has ranged between 55% and 65% over the past year.

“With the target price revision and increased risk profile, we downgrade the stock to a Hold from Buy.

“Key downside risks include a sharp downturn in property prices, weak demand and further delays in completion.

“Stronger-than-expected demand and improvement in property prices could improve margins and earnings,” it said.

With over 90% of Amcorp Prop’s earnings derived from London, the research house said it believes Brexit would raise uncertainty over the future sales at least over the near term.

While impact is likely still too early to be ascertained, management guided that buyers had already been more cautious leading to the event, it said.

“With Brexit, commercial property demand could be uncertain should there be any relocation of headquarters of either European banks or MNCs.

“This would inadvertently have a knock on effect on residential property,” it said.