Investment Highlights

• We maintain our HOLD recommendation on Sime Darby Property (SimeProp) with an unchanged FV of RM0.60 based on a 60% discount to RNAV (Exhibit 2). We make no changes to our FY20–FY22 net earnings forecast.

• SimeProp registered a 1QFY20 core net profit of RM19.5mil (-67.8% YoY). Despite making up only 6% of our full-year forecast, we reckon it to be in line with our forecasts as we expect higher revenue recognitions in 2H. The lower earnings are mainly due to the impact of the movement control order (MCO) and share of loss from Battersea project.

• Its property development EBIT fell significantly by 78% YoY to RM15.4mil due to the abovementioned reasons. The main contributors of the property development segment are projects from Elmina West, Subang Jaya City Centre, Ara Damansara and the Nilai Utama township.

• SimeProp secured new sales of RM344.6mil mainly from ongoing projects and completed inventories. As at 1QFY20, total unbilled sales was flattish QoQ at RM1.5bil.

• The property investment segment registered an EBIT of RM1.2mil compared to RM5.0mil YoY due to pre-opening expenditures of KL East Mall, higher overhead expenses for a concession arrangement as well as share of losses from Melawati Mall and SD MIT JVs.

• Meanwhile, the leisure and hospitality segment recorded a higher loss of RM5.4mil compared to RM11.3mil YoY due to lower contribution from events and the MCO impact.

• The company will continue to monitor the situation and revise its financial targets, including sales estimates, when necessary. At the same time, SimeProp will also continue to monetise its low-yielding assets to unlock value and channel the capital into business opportunities with better returns.

• Nevertheless, we believe the long-term outlook for SimeProp remains stable, premised on inventory-clearing activities and overseas contribution in late FY20/ early FY21 and a healthy balance sheet. As there is little upside potential, we maintain our HOLD recommendation on SimeProp.

Source: AmInvest Research - 22 May 2020