Investment Highlights

• We maintain our HOLD recommendation on Sime Darby Property (SimeProp) with a lower fair value of RM0.66/share from RM0.67/share based on revised RNAV valuation. Our fair value is based on a 50% discount to its RNAV and a 3% premium for our 4-star ESG rating (Exhibits 4 & 5).

• SimeProp’s 1QFY22 core net profit (CNP) of RM52mil was below expectations, making up only 15% of our FY22F earnings while it accounted for 21% of consensus estimate. We lower our FY22F/FY23F/FY24F CNP by 27%/35%/14% to reflect margin compression from higher building material cost and slower progress billings due to labour shortage.

• In 1QFY22, the group’s property development segment’s EBIT declined 37% YoY. This was dragged by a 21% drop in revenue due to lower development activities in City of Elmina, Serenia City, Bukit Jelutong and KLGCC Resort.

• Earnings from property development were further weighed down by lower sales of completed stocks in KLGCC Resort, Taman Melawati and KL East township as well as slower site progress due to labour shortage.

• Despite the decline, we expect the group’s FY22F revenue and CNP to be largely supported by unbilled sales of RM2.9bil (+73% YoY from RM1.7bil) which represented a cover ratio of 1x of FY22F revenue (Exhibit 3).

• SimeProp secured new sales of RM889mil (+41% YoY) in 1QFY22, attaining 34% of its FY22F sales target of RM2.6bil. This was largely driven by properties which were launched in FY21. Bookings remain healthy at RM1.5bil as at 8 May 2022 (vs. RM2.1bil as at 6 February 2021).

• Other areas in Klang Valley, particularly KLGCC Resort and Serenia City accounted for 31% of total 1QFY22 group sales while Klang (25%) overtook Guthrie Corridor (24%) as the second largest sales contributor. Product-wise, landed residential properties garnered strong demand, securing 40% of the sales followed by industrial products at 31% and residential high-rise units at 21%.

• SimeProp recorded a strong average take-up rate of 98% for its 1QFY22 new launches with a total gross development value (GDV) of RM384mil. It achieved an impressive 100% take-up rate for its newly launched industrial properties in Elmina Business Park and Nilai Impian with a total GDV of RM127mil.

• The property investment segment’s 1QFY22 EBIT surged 3.9x YoY driven by higher contributions from KL East Mall and an improved share of results from Melawati Mall.

• The leisure segment’s turnaround to a 1QFY22 EBIT of RM8mil (from 1QFY21 LBIT of RM3mil) was due to more events and functions held following the easing of movement restrictions and resumption of business activities.

• QoQ, the group’s 1QFY22 CNP tumbled 27% due to relatively weaker sales following a stronger 4QFY21 performance which was supported by the Home Ownership Campaign. 1QFY22 property development EBIT dropped 39% QoQ. On a brighter note, we saw EBIT improvements QoQ on the property investment and leisure segments.

• As the stock currently trades at an unexciting FY23F PE of 14x near its 2019 pre-pandemic valuations, we see limited potential upside for this stock.

Source: AmInvest Research - 25 May 2022