Investment Highlights

• We maintain our HOLD recommendation on Sime Darby Property (SimeProp) with an unchanged fair value of RM0.64/share based on a 50% discount to its RNAV and a 3% premium for our 4-star ESG rating (Exhibits 4 & 5).

• SimeProp’s 1HFY21 core net profit (excluding property development expenditure write-off and impairment of receivables amounting to RM3mil) of RM83mil came in within expectations even though accounting for only 30% of our FY21F earnings and consensus.

• We maintain our earnings forecasts for now on expectation that progress billings could gather momentum over the subsequent quarters from rising sales and construction activities. We also retain our FY21F DPS of 1.5 sen although the group declared a strong first interim DPS of 1 sen, translating to a substantive 1HFY21 payout ratio of 83% vs. only 48% in FY20.

• YoY, the group’s property development EBIT returned to the black to RM182mil due to a 45% revenue increase, driven by sales and development activities in City of Elmina, Elmina Business Park, Serenia City, Bandar Ainsdale and KLGCC Resort. This was further supported by higher sales of completed stocks in KL East and Melawati as well as lower share of losses from JV/associates’ projects.

• SimeProp secured new 1HFY21 sales of RM1.3bil (+84% YoY), attaining 55% of its FY21F sales target of RM2.4bil. Key contributors such as Guthrie Corridor accounted for 50% of total 1HFY21 group sales while other areas in Klang Valley, particularly Serenia City and Senada, made up 17%. Product-wise, landed residential garnered strong demand, securing 51% of the sales followed by industrial products at 18%, residential high-rise 16% and commercial 11%.

• The property investment segment narrowed losses to RM2mil (from RM10mil in 1HFY20) due to higher contributions from KL East Mall and concession business.

• The leisure segment’s revenue fell by 11% YoY to RM27mil due to fewer events and functions held amidst the various MCOs, but still managed to cut LBIT by 61% to RM6mil, thanks to operations consolidation led to cost efficiency.

• QoQ, the group’s 2QFY21 EBIT dropped 14% to RM84mil from RM98mil in 1QFY21, dragged by weaker earnings in property development despite property investment breaking even from an LBIT of RM3mil previously while the leisure division stayed flat with an LBIT of RM3mil.

• Key takeaways from analyst briefing yesterday:
  
  1) The group has successfully launched projects worth RM1.6bil in GDV in 1HFY21, in line with its initial target. The average take-up rates for residential new launches stood at 89% as at 8 Aug 2021. Meanwhile, SimeProp has secured RM1bil bookings, 63% of 1HFY21 launches.
  
  2) Moving forward to 2HFY21, SimeProp is set to launch projects worth RM2.1bil in GDV, in which 47% will be launched in 3QFY21. 75% of the launches are residential products (driven by Jendala Phase 2 of KLGCC Resort in August this year, Nilai Impian 2, Bandar Bukit Raja & Bandar Ainsdale), followed by commercial (14%) and industrial products (10%).
  
  3) 97% of the group’s developments are back on track with a workforce operating at 60% capacity of pre-pandemic levels as 86% of its workers have been vaccinated with a single dose and 10% with the second injection.
   
• While SimeProp is poised to ride on the sector recovery, underpinned by launches in key township, such as City of Elmina, its current unbilled sales of RM1.8bil (+19% YoY from RM1.5bil) translate to only 0.7x of FY21F revenue. We view its potential upside as limited as the stock currently trades at a fair FY21F PE of 15x, near its 4-year peak.

Source: AmInvest Research - 27 Aug 2021