Investment Highlights

• We maintain our HOLD call on Sime Darby Property (SimeProp) with an unchanged fair value of RM0.60 based on a 60% discount to RNAV (Exhibit 2). We cut our FY20 net earnings forecasts by 21% to reflect the timing of recognition while make no changes to FY21–22 numbers.

• SimeProp registered a 1HFY20 net loss of RM67.6mil. Excluding the exceptional items (write-down of completed inventories, impairment of receivables and other provisions) amounting to RM120.7mil, 1HFY20 core net profit came in at RM53.1mil (-77.8mil), making up 18% and 20% of our and consensus full-year estimates. The lower earnings are mainly due to the impact of the movement control order (MCO) and share of loss from JV projects.

• The company’s property development segment reported an operating loss of RM89.5mil compared to a profit of RM248.6mil YoY due to the abovementioned reasons.

• SimeProp secured new sales of RM712.5mil mainly from landed residential in township developments. Meanwhile, the company has received bookings of RM1.1bil as at 31 July 2020. As at 1HFY20, total unbilled sales remained similar QoQ at RM1.5bil.

• The property investment segment recorded an operating loss of RM4.5mil compared to a profit of RM8.4mil YoY largely due to the closure of assets and reduced occupancy rates, as well as the impact of rental rebates during the enforcement of the MCO.

• Meanwhile, the leisure segment posted a loss of RM15.8mil compared to a loss of RM8.6mil YoY mainly attributed to the closure of Leisure properties namely TPC Kuala Lumpur and Sime Darby Convention Centre during the MCO.

• SimeProp will remain focused on maintaining its financial discipline through cost-rationalization initiatives as well as cash flow and inventory management.

• Nevertheless, we believe the long-term outlook for SimeProp remains stable, premised on inventory-clearing activities and overseas contribution expected 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 - 27 Aug 2020