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 4 & 5).

• We cut our FY21F earnings by 53% to RM132mil on lower progress billing assumptions as SimeProp’s 9MFY21 core net profit (excluding property development expenditure write-off and impairment of receivables amounting to RM6mil) of RM71mil was below expectations, accounting for only 26% of our earlier FY21F earnings and 37% of consensus.
  However, we have largely maintained our FY22–23F earnings on expectation that progress billings could gather momentum over the subsequent quarters from rising sales and construction activities. This is supported by the group’s strong bookings of RM1.7bil as at 7 November 2021, which is equivalent to 71% of its FY21F sales target.

• YoY, the group’s 9MFY21 property development EBIT returned to the black to RM204mil in tandem with a 10% revenue increase, driven by sales and development activities in City of Elmina, Elmina Business Park, Serenia City and Bandar Ainsdale. This was also driven by higher sales of completed stocks in KLGCC Resort, KL East and Melawati as well as lower share of losses from JV/associates’ projects.

• SimeProp secured new 9MFY21 sales of RM1.9bil (+51% YoY), attaining 80% of its FY21F sales target of RM2.4bil. Key contributors such as Guthrie Corridor projects accounted for 42% of total 9MFY21 group sales with 39% from other areas in Klang Valley (Serenia City and KLGCC Resort).

• Product-wise, landed residential garnered strong demand, securing 47% of 9MFY21 sales followed by residential highrise 23%, industrial products at 16%, and commercial 9%.

• The property investment segment halved 9MFY21 losses to RM8mil (from RM16mil in 9MFY20) due to higher contributions from KL East Mall and concession business.

• The leisure segment’s revenue contracted by 31% YoY to RM38mil due to fewer golfing activities, events and functions during the various MCOs, leading to a 9% YoY increase in LBIT to RM16mil.

• QoQ, the group reversed to a 3QFY21 LBIT of RM2mil from a 2QFY21 EBIT of RM84mil as intensified lockdowns weighed down on all segments’ revenue.

• We believe SimeProp is able to ride on the sector’s recovery, underpinned by upcoming launches in key townships, such as City of Elmina. However, the company’s unbilled sales of RM2.2bil (+15% QoQ from RM1.8bil) translate to only 1.5x of our FY22F revenue. We view its potential upside as limited as the stock currently trades at a fair FY22F PE of 13x, near its 4-year peak.

Source: AmInvest Research - 26 Nov 2021