Investment Highlights

• We maintain our HOLD recommendation on Sime Darby Property (SimeProp) with an unchanged fair value of RM0.67/share based on a 50% discount to its RNAV and a 3% premium for our 4-star ESG rating (Exhibits 1 & 2).

• Our RNAV has been reduced marginally by 0.4% to RM4.4bil arising from the disposal of 16-acre freehold industrial land in Hamilton Industrial Park, Nilai, Negeri Sembilan.

• We estimate that the land sale to Ajiya Berhad’s wholly owned Asia Roofing Industries Sdn Bhd and Ajiya Safety Glass Sdn Bhd for RM34.5mil cash at RM50 psf could generate a net gain of RM22mil given a net book value of RM7.59 psf in SimeProp’s FY20 annual report.

• This could increase our FY23F core net profit by 6% given that the estimated completion period is within 2 years from now.

• In our view, the selling price seems fair as channel checks indicate that smaller pieces of land in the park are being offered at slightly higher RM55 psf.

• We expect the group to use the proceeds for land-banking activities or repay borrowings, although this will have a slight 1%-point impact to the group’s net gearing levels to 25%.

• We are positive on the group’s strategy to monetise its industrial landbanks in Malaysia Vision Valley (MVV) at decent gains. Other than the land sale, the industrial products in Hamilton, MVV were well received with more than 80% of take-up rate in 2QFY21 since its launching in June this year.

• Separately, we understand that the announced Budget 2022 would not cause significant impact to the group’s earnings as SimeProp would not be affected by the oneoff 2022 Prosperity Tax of 33% given that the pretax profits of each subsidiaries are below the taxable profit threshold of RM100mil.

• While SimeProp is poised to ride on the sector recovery underpinned by launches in key townships 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.

• Its potential upside is limited as the stock currently trades at a fair FY21F PE of 17x, near its 4-year peak of 18x.

Source: AmInvest Research - 12 Nov 2021