Investment Highlights

• We maintain our HOLD recommendation on Sime Darby Property (SimeProp) with a lower FV of RM0.86 (fom RM0.90) based on a 50% discount to RNAV (Exhibit 2). We cut our FY20–FY21 numbers by 2% and 10% respectively to reflect the timing of recognition while introducing FY22 net earnings forecast at RM384.4mil.

• SimeProp registered a FY19 net profit of RM598.5mil (+287.8% YoY). This is mainly boosted by a higher contribution from the property development segment and one-off gains. Excluding these exceptional items, the company’s FY19 core net profit of RM352.1mil (+502% YoY) came in within our expectation but below consensus.

• The property development’s EBIT improved significantly by 597.6% YoY to RM416.9mil mainly on higher contributions from Denai Alam, Bukit Jelutong, Nilai Utama, Bandar Bukit Raja, Serenia City and Putra Heights township, KLGCC Resort and Cantara Residences.

• SimeProp secured new sales of RM3.1bil mainly contributed by ongoing projects and completed inventories. As at FY19, total unbilled sales stood at RM1.6bil similar to QoQ.

• The property investment segment registered a lower profit of RM5.0mil as compared to RM54.4mil YoY due to the absence of income from concession arrangement.

• SimeProp’s share of losses from JVs and associates increased to RM31.4mil (+17.2%) mainly attributable to the higher marketing expenses incurred by Battersea and a lower share of profit from PJ Midtown.

• The company anticipates that the market will remain soft in 2020 due to the prevailing overhang situation and expiry of the Home Ownership Campaign at the end of 2019. SimeProp will continue to monetise low-yielding assets to unlock value and channel the capital into business opportunities with better returns.

• We believe the outlook for SimeProp remains stable, premised on inventory-clearing activities and 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 - 27 Feb 2020