Mah Sing starts to rise on better sentiments.

The property developer did well to surge some 114.9% over a year, recovering from its low of 82 sen a year ago. The positive sentiments on Mah Sing could stem from the better outlook for Malaysia’s property developers.

They may see valuations of these property developers to rise further even after 2024’s strong rally. Stocks in the high-risk-high-return sector continue to perform.

In particular, developers with growing recurring income and investment portfolios may see rising investor interest. While valuations of big-cap property stocks will likely stay elevated, some smaller-cap quality developers may catch up. The underlying asset values are the key factor supporting valuations, as opposed to the cyclical property development business.

Bursa Malaysia Property Index, which tracks 97 stocks in the sector, have risen 32% last year thanks to the involvement of select companies in the highly-lucrative data centres business and industrial projects that provide recurring income from rental of factories.

The 20 largest property developers by market capitalisation have delivered an average total return of 57% compared to the 16% gain recorded by the subsequent 20 firms. Still, the sector is trading at a 48% discount to their realisable net asset value.

Investors should start to take positions in the likes of Sime Darby Property Bhd, Mah Sing and Matrix Concepts Holdings Bhd. These players have been able to take advantage of their existing landbank and monetise them by developing income-yielding assets.

Meanwhile, smaller-cap developers, particularly those with strong sales, solid finances, strategic landbank and niche projects, are likely to close the valuation gap with their larger peers this year.