Investment Highlights

• We maintain our HOLD call on Sime Darby Property (SimeProp) with a lower fair value of RM0.61 (from RM0.70) based on a 60% discount to RNAV (Exhibit 2). We cut our FY21–22 net earnings forecasts by 12% and 9% respectively to reflect the timing of recognition while introducing FY23 net earnings forecast at RM358.5mil.

• SimeProp registered a net loss of RM478.8mil in FY20. Excluding the exceptional items (write-down of inventories and development expenditures and impairment of inventories in the Battersea project) amounting to RM620mil, FY20 core net profit came in at RM141.7mil, which is within our expectations. The lower core earnings are mainly due to the Covid-19 pandemic’s impact which affected all the group’s business segments.

• In the UK, the Covid-19 pandemic has impacted the delivery of the Battersea project in London. Hence, the Battersea Group recognised an impairment of its work in progress and inventories under development. Simeprop’s 40% share of the impairment amounted to RM337.1mil.

• The company’s property development segment reported an FY20 core PBT of RM177.3mil, 62% lower vs. RM470.9mil YoY due to lower take-up rates and slower revenue recognition in flagship townships as a result of the various movement control orders (MCO).

• On a positive note, SimeProp secured new sales of RM1,981mil mainly from landed residential in township developments in Elmina East and Elmina West in Selangor. Total unbilled sales were similar QoQ at RM1.58bil.

• The company launched projects with a total GDV of RM1.5bil in FY20 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. Meanwhile, SimeProp is planning to launch projects with GDV of up to RM2.5bil and targeting new sales of RM2.4bil for 2021.

• SimeProp remains focused on maintaining financial discipline through cost-rationalization initiatives as well as cash flow and inventory management. Nevertheless, we believe the long-term outlook for SimeProp is 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 Feb 2021