Investment Highlights

• We maintain our HOLD recommendation on Sime Darby Property (SimeProp) with an unchanged fair value (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 earlier today to shed more light on its recently announced 9MFY20 results. Here are the key takeaways:
  1. Sales target. SimeProp chalked up new sales of RM1.3bil in 9MFY20 whereby 48.5% are derived from newly launched landed residential projects namely Ilham Residences in Elmina East and Lumira 1 in Bandar Bukit Raja 2 & 3, Klang. Management is maintaining its sales target of RM1.4bil for FY20.
  2. Unbilled sale increased remained flat QoQ at RM1.5bil, of which 78.2% were from projects in flagship townships (Elmina West, Bandar Bukit Raja and Serenia City – all in Selangor).
  3. New launches and take-up rates for 9MFY20. SimeProp has launched projects worth RM1.3bil in GDV in 9MFY20 with its main focus on landed residential properties. These new launches received take-up rates of 84% as of 15 Nov 2020. Meanwhile, the company is planning to launch new projects worth RM200mil in GDV in 4QFY20.
  4. Efforts to reduce inventory levels. SimeProp will carefully review its new launches, taking into account of its existing inventory level. Completed inventories increased by 9.2% YoY to RM582mil due to the completion of ongoing developments mainly from The Ridge in KL East and industrial lots in Elmina East.
  5. Maintaining strong cash flow. 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 (RM500K–RM800K) in its flagship township developments such as Elmina and Bandar Bukit Raja. SimeProp will also increase the use of digital marketing channels such as emails, news portals and social media, as well as virtual showrooms.
• To recap, SimeProp registered a core net profit of RM52.4mil (-80.9% YoY) for 9MFY20. The lower earnings are mainly due to the impact of the movement control order (MCO), Covid-19 pandemic and share of loss from JV projects.
• 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 - 26 Nov 2020