Investment Highlights

• We maintain our BUY recommendation on Sime Darby Property (SimeProp) with an unchanged fair value of RM1.05 based on a 45% discount to RNAV (Exhibit 2). We made no changes to our FY19–21 earnings forecasts.

• SimeProp held an analyst briefing yesterday to shed more light on its recently announced 1HFY19 results. Here are the key takeaways:

1) Sales target. SimeProp chalked up new sales of RM1.4bil in 1HFY19 and is on track to achieve its sales target of RM2.0– 2.5bil for FY19. Management is confident of achieving its sales target following the success of the Primetime 8 and Pop Raya campaigns, which seen encouraging take-up rates.

2) New launches for 2HFY19. SimeProp is targeting to launch projects worth RM1.0bil in GDV in 2HFY19 with its main focus on landed residential properties. So far, SimeProp has launched 2,082 units with GDV amounting to RM1,202.4mil in 1HFY19. 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 takeup 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) Efforts to reduce 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 749 units (QoQ: 829 units) to improve working capital.

4) Asset monetisation activities. Following the disposal of Darby Park Executive Suites and 300 acres of land in Bukit Selarong, Kedah, SimeProp will continue to reduce and monetise its non-core assets with the proposed disposals of 1.16 acres of freehold land at Jalan U Thant, KL; and 2 units of holiday bungalows on 1.71 acres of freehold land at Pulau Tikus, Penang. SimeProp is targeting to complete the disposals by 4QFY19.

• To recap, SimeProp registered a core net profit of RM239.0mil (+197.9% YoY) for 1HFY19, mainly attributed to property development contribution from Bandar Bukit Raja, Denai Alam, Nilai Impian/Utama townships and Cantara Residences in Ara Damansara.

• Nevertheless, we remain cautious on the property sector due to: (i) the generally still elevated home prices; (ii) the low loanto-value (LTV) offered by banks; and (iii) house buyers' inability to qualify for a home mortgage due to their already high debt service ratios (DSR)

Source: AmInvest Research - 30 Aug 2019