Investment Highlights

• We maintain our HOLD recommendation and forecasts 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).

• SimeProp held an analyst briefing last Friday following its 9MFY21 results announcement. Here are the key takeaways:

1. To recap, the company registered 9MFY21 new sales of RM1.9bil (80% of FY21 sales target of RM2.4bil) while unbilled sales rose 14% QoQ to RM2.1bil in which 66% will be recognised by FY2022.
2. The group has successfully launched projects worth RM2.3bil in gross development value (GDV) in 9MFY21, meeting 59% of its initial FY21F new launch target of RM3.9bil.
   In 3QFY21, new launches with a GDV of RM640mil came from landed residences (RM93mil) and high-rise residential, commercial and statutory products (RM547mil).
   Landed residential products at Lyra 3, Bandar Bukit Raja 2 and Anggun, Bandar Ainsdale were well received with take-up rates of more than 85% despite lockdowns.
3. Moving forward, SimeProp is aggressively planning new launches with a total GDV of RM1.6bil in 4QFY21, leveraging the potential pent-up demand from homeoccupiers by the year-end before the Home Ownership Campaign (HOC) incentives expire on 31 December 2021.
4. 58% of the planned GDV launches are landed residential products at Bukit Jelutong, City of Elmina, Bandar Bukit Raja 2, Bandar Ainsdale, Serenia City and Nilai Impian.
   The remaining stems from industrial (26% of GDV) and residential high-rise products (14% of GDV) at Maya Ara, Ara Damansara.
5. The group is actively monetising its industrial products including the land banks in Hamilton, Nilai. Given that the strategic area in Malaysia Vision Valley 2.0 has attracted buyers from various industrial segments, the 123-acre saleable area was fully taken up with 100% accepting letters of offer since its launch in October this year.
   Thus, we are comfortable that the newly-acquired 760-acre industrial land bank in Labu could potentially garner another wave of strong buying interest in tandem with the uptrend in the industrial property market, supported by the company’s quick turnaround strategy.
6. For the group’s 40%-owned Battersea Power Station (in which S P Setia also has a 40% stake and EPF the remaining 20%) in London, Phase 2 and Phase 3A have been almost completed with a summer opening next year that will be supported by more than 40 retailers and F&B operators. Meanwhile, building construction commenced for Phase 3B, which we understand could have an indicative GDV of £450mil, comprising mainly commercial products. This phase is targeted to be completed by July 2023.

• We believe SimeProp’s 4QFY21 net profit could be stronger QoQ, similar to its 1QFY21 earnings of RM62mil. 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, together with higher progress billings and construction activities.
• However, 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 - 29 Nov 2021