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–FY21 net earnings forecasts by 58% and 32% to reflect the timing of recognition while make no changes to FY22 numbers.
• SimeProp registered a 9MFY20 net loss of RM422.9mil. Excluding the exceptional items (write-down of inventories and development expenditures and impairment of inventories in the Battersea project) amounting to RM475.3mil, 9MFY20 core net profit came in at RM52.4mil (-77.8mil), making up 20% of our and consensus full-year estimates. The lower core earnings are mainly due to the Covid-19 pandemic’s impact.
• The company’s property development segment reported a 9MFY20 core EBIT of RM107mil, 44% lower vs. RM241.3mil YoY due to lower take-up rate and slower revenue recognition in flagship townships.
• On a positive note, SimeProp secured new sales of RM1,272.1mil mainly from landed residential in township developments, namely Ilham Residences in Elmina East and Lumira in Bandar Bukit Raja, Klang. As at 9MFY20, total unbilled sales are similar QoQ at RM1.5bil.
• The company launched projects with a total GDV of RM1.3bil as of 9MFY20 which saw average take-up rates of more than 80%. Nonetheless, these projects are still in their early stages, hence we expect minimal recognition in the next 6 months. SimeProp is planning to launch projects with GDV of up to RM200mil for 4QFY20.
• The property investment segment recorded a 9MFY20 core operating loss of RM9.1mil compared to a profit of RM9.1mil YoY largely due to higher pre-opening expenditure incurred for KL East Mall, as well as the impact of rental rebates during the enforcement of the MCO during 2QFY20.
• Meanwhile, the leisure segment posted a loss of RM14.3mil compared to a loss of RM13.0mil YoY mainly attributed to the closure of leisure properties namely TPC Kuala Lumpur and the 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 strong take-up rates and a healthy balance sheet. As there is little upside potential, we maintain our HOLD recommendation on SimeProp.

Source: AmInvest Research - 26 Nov 2020