Investment Highlights

• We maintain our HOLD recommendation on Sime Darby Property (SimeProp) with an unchanged fair value of of RM0.61 based on a 60% discount to RNAV (Exhibit 1). We make no changes to our FY21–FY23 net earnings forecast.

• SimeProp held an analyst briefing earlier today to shed more light on its recently announced FY20 results. Here are the key takeaways:

1. Sales target. SimeProp chalked up new sales of RM1,981mil in FY20 whereby 54% are derived from newly launched landed residential projects. Management is maintaining its sales target of about RM2.4bil for FY21.
    
2. Unbilled sale remained flat QoQ at RM1,58bil, of which 81.6% were from projects in townships developments (Elmina East & West, Bandar Bukit Raja and Serenia City).
    
3. New launches and take-up rates for FY21. SimeProp launched projects worth RM1.5bil in GDV in FY20 with its main focus on landed residential properties. These new launches received takeup rates of more than 80% as of 31 Dec 2020. Meanwhile, the company is planning to launch new projects worth RM2.5bil in GDV for FY21.
    
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 4.5% YoY to RM556.8mil due to completion of the ongoing developments mainly from The Ridge in KL East and commercial units in Ara Damansara.
    
5. Key priorities for FY21. The company’s immediate priorities for FY21 will be the diversification of income streams (such as industrial and logistics development), effective cost management, active marketing and sales campaigns, inventory management and cost reduction. Key launches in 2021 under the industrial & logistics segment include stage 1 of Elmina Business Park comprising 303 industrial units and 78 commercial units with a GDV of RM1.26bil in 2HFY21. SimeProp will also expand its product offerings to include its first multi-tenant ready-built warehouse with a GDV of RM530mil in Bandar Bukit Raja Industrial Gateway, Klang, Selangor.

• To recap, SimeProp registered a core net profit of RM141.7mil (-54.6% YoY) for FY20. The lower earnings were mainly due to the impact of the movement control orders (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 - 1 Mar 2021