Investment Highlights

• We maintain our HOLD recommendation on Sime Darby Property (SimeProp) with an unchanged FV of RM0.90 based on a 50% discount to RNAV (Exhibit 2). We made no changes to our FY19–FY21 net profit forecasts.

• SimeProp registered a 9MFY19 net profit of RM495.6mil (+348.1% YoY). This is mainly due to gains on the disposals of Darby Park Executive Suites, Singapore, investment properties in the UK, and other gains totalling RM220.8mil. Stripping off these exceptional items, the company’s 9MFY19 core net profit of RM274.8mil (+152.5% YoY) came in within our expectation but below consensus at 75% and 54% of our and consensus full-year estimates respectively.

• The property development’s operating profit improved significantly by 252.7% YoY to RM2414.9mil mainly on higher contributions from Bandar Bukit Raja, Denai Alam, Nilai Impian/Utama townships and Cantara Residences in Ara Damansara but lower contributions from Elmina and Bandar Universiti Pagoh townships.

• The property investment segment registered a lower profit of RM8.9mil as compared to RM47.0mil YoY due to the absence of income from concession arrangement.

• SimeProp’s share of losses from JVs and associates increased to RM35.4mil (+31.8%) mainly attributable to the higher marketing expenses incurred by Battersea and a lower share of profit from PJ Midtown.

• As at 9MFY19, total unbilled sales stood at RM1.6bil vs. QoQ’s 1.5bil. SimeProp secured new sales of RM2.3bil mainly contributed by ongoing projects and completed inventories.

• SimeProp is gearing up its strategic campaign to promote new and completed developments to reduce its inventory level. Meanwhile, the company’s focus remains on affordable properties priced below RM500K and mid-range products priced between RM500K and RM800K per unit where demand remains strong.

• We believe the outlook for SimeProp remains stable, premised on good take-up rates, particularly Serenia City, inventory-clearing activities, overseas contribution in 4QFY20 and a healthy balance sheet. As there is little upside potential, we maintain our HOLD recommendation on SimeProp.

Source: AmInvest Research - 28 Nov 2019