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).

• SimeProp’s FY21 core net profit of RM142mil was above expectations, coming in 8% above our forecast and 7% ahead of consensus estimates. We maintain our earnings forecasts which include a FY22F rebound of 2.4x on the assumption that progress billings could gather momentum over the subsequent quarters from rising sales and construction activities.

• In FY21, the group’s property development EBIT returned to the black to RM311mil due to an 8% revenue increase, driven by sales and development activities in City of Elmina, Elmina Business Park, Bukit Jelutong, Bandar Ainsdale and KLGCC Resort.

• This was further supported by higher sales of completed stocks in KL East, KLGCC Resort, Melawati and Planters’ Haven as well as lower write-down and write-off of inventories coupled with lower share of losses from JV/associates’ projects.

• SimeProp secured new FY21 sales of RM3bil (+51% YoY), which exceeded its own sales target of RM2.4bil by 25%, and almost on par with the pre-pandemic level of RM3.1bil (Exhibit 3).

• Key contributors such as Guthrie Corridor accounted for 36% of total FY21 group sales while other areas in Klang Valley, particularly KLGCC Resort and Serenia City, made up 41%. Product-wise, landed residential garnered strong demand, securing 44% of the sales followed by residential high-rise 25%, industrial products 18% and commercial 6%.

• The property investment segment turned around to an FY21 EBIT of RM1mil (from FY20 LBIT of RM114mil) due to higher contributions from KL East Mall and lower share of losses from Melawati Mall.

• The leisure segment’s FY21 revenue fell by 23% YoY to RM56mil due to fewer events and functions held amidst the various MCOs, but still managed to halve LBIT to RM14mil, thanks to cost efficiencies from the consolidation of operations.

• QoQ, the group rebounded to a 4QFY21 EBIT of RM117mil from an LBIT of RM7mil in 3QFY21, lifted by a 7.9x earnings surge in property development and broke even in both property investment and leisure divisions.

• 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 RM2.4bil (+52% YoY from RM1.6bil) translate to only 0.7x of FY22F revenue. As the stock currently trades at an unexciting FY22F PE of 13x near its pre-pandemic valuations in 2019, we view its potential upside as limited.

Source: AmInvest Research - 25 Feb 2022