Investment Highlights

• We maintain our HOLD recommendation on Sime Darby Property (SimeProp) with an unchanged fair value of RM1.03 based on a 45% discount to RNAV (Exhibit 1). We made no changes to our FY19–21 earnings forecasts.

• SimeProp held an analyst briefing yesterday to shed more light on its recently announced 1QFY19 results.

• Key takeaways:

1) Sales target. SimeProp is on track to achieve its sales target of RM2.0bil for FY19. For 1QFY19, it registered new sales of RM403mil (+57% YoY). Management is confident of achieving its sales target following the success of the Primetime 8 campaign, which had seen an overwhelming take-up for its new launches —100% take-up on launch day for Elsa (Bandar Bukit Raja); 90% take-up for Elmina Valley Five (Elmina West); and more than 70% for the The Ridge (KL East).

2) New launches. SimeProp is targeting to launch RM2.0–2.5bil worth of GDV in FY19 with its main focus on landed residential properties. Given the soft and competitive market, management noted that new launches shall be aligned to market demand in relation to price, type, location and timing to ensure high take-up rates. The key focus will be landed residential properties in the affordable to mid-range range segment (RM500K–RM800K) in Elmina, Bandar Bukit Raja and Serenia City.

3) Manage inventory levels. SimeProp will carefully review its new launches, taking into account of existing inventory level. SimeProp will ramp up its efforts on completed but unsold products of 829 units (QoQ: 883 units) to improve working capital.

4) Unlock value from low-yielding assets and non-core land. Following the disposal of Darby Park Executive Suites, SimeProp will continue to reduce and monetise its non-core assets. Meanwhile, the company had completed the disposal of 300 acres of land in Bukit Selarong, Kedah in May 2019, which will be recognized in 2QFY19.

• To recap, SimeProp registered a core net profit of RM60.7mil (+89% YoY) for 1QFY19, mainly attributed to property development contribution from Bandar Bukit Raja, Denai Alam, Nilai Impian/Utama townships and Cantara Residences in Ara Damansara.

• We maintain our view that the property market will remain subdued in short to medium term due to oversupply while many potential buyers are having difficulty in obtaining loans due to their already high debt service ratios. We believe the local residential property market still lacks major catalysts such as strong GDP growth and easing of lending policies to turn the tide.

Source: AmInvest Research - 31 May 2019