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 1). We make no changes to our FY20–FY22 net earnings forecast.

• SimeProp held an analyst briefing yesterday to shed more light on its recently announced 1QFY20 results. Here are the key takeaways:

1) Sales target. SimeProp chalked up new sales of RM344.6mil (-14.5% YoY) in 1QFY20 whereby 56.1% were derived from residential properties. Management guided for a reduction of sales target by 30%-40% to about RM1.5bil for FY20.

2) Unbilled sale declined by 5.5% YoY to RM1,466.8mil, of which 69.1% were derived from projects in flagship townships (Elmina West, Bandar Bukit Raja and Serenia City).

3) New launches for 1QFY20. SimeProp launched projects worth RM496.6mil in GDV in 1QFY20 with its main focus on landed residential properties. These new launches received booking of between 64% and 78%.

4) Efforts to reduce inventory levels. SimeProp will carefully review its new launches, taking into account of its existing inventory level. Completed inventories were reduced by 29.3% YoY to RM588.5mil.

5) Key priorities for FY20. The company’s immediate priorities for FY20 will be on cash flow management, active marketing and sales campaigns, inventory management and cost reduction. SimeProp will remain focused on growing its core development business by offering properties within the affordable and mid-range price points in strategic locations.

• To recap, SimeProp registered a core net profit of RM19.5mil (-67.8% YoY) for 1QFY20. The lower earnings are mainly due to the impact of the movement control order (MCO) and share of loss from Battersea project.

• 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 a healthy balance sheet. As there is little upside potential, we maintain our HOLD recommendation on SimeProp.

Source: AmInvest Research - 27 May 2020