Investment Highlights

• We maintain BUY on Sime Darby Property (SimeProp) with an unchanged fair value (FV) of RM0.63/share based on an unchanged 55% discount to its RNAV and a 3% premium for our 4-star ESG rating (Exhibits 7, 8).

• SimeProp’s 9MFY22 core net profit (CNP) of RM173mil was slightly below our expectation but within consensus, making up 69% of our FY22F earnings and 73% of streets’.

• We make no changes to our forecasts on expectations of an improvement in labour market conditions in 4QFY22, which will accelerate the progress of property development activities and consequently translate into higher progress billings.

• In 9MFY22, the group’s property development PBT improved 60% YoY. This was on the back of YoY revenue growth of 19% as a result of higher property sales of on-going projects, coupled with higher on-site development activities of its projects in Klang Valley. Earnings from property development were further boosted by land sales in Selangor and Sabah together with monetisation of inventory (Exhibit 4).

• SimeProp’s 9MFY22 launches of RM2.1bil (vs. RM2.3bil in 9MFY21) accounted for 75% of its FY22F target of RM2.8bil. This consists of a diverse mix of residential and industrial projects at a ratio of 44% to 54%, with a strong average takeup rate of 90% (Exhibit 5).

• SimeProp secured new sales of RM2.7bil (+43% YoY) in 9MFY22, surpassing its FY22F sales target of RM2.6bil (Exhibits 3). We expect SimeProp’s sales in 4QFY22 to remain strong given the continuous robust take-up rate and the group’s planned launches worth RM504mil in 4QFY22F (Exhibit 6).

• Its strong bookings of RM2.1bil as at 6 November 2022 (vs. RM1.6bil as at 7 August 2022) and high bookings to sales conversion rate of 70%–80% further support its commendable sales prospects in FY22F.

• Meanwhile, the group’s unbilled sales expanded 4% QoQ to RM3.5bil, which represents a cover ratio of 1.2x of FY23F revenue (Exhibits 3).

• The property investment segment’s 9MFY22 PBT surged 48% YoY driven by higher contributions from KL East Mall and Melawati Mall. In KL East Mall, we saw an improved occupancy rate of 79% in 9MFY22 vs. 71% in 9MFY21, as well as increased footfalls.

• The leisure segment’s turnaround to a 9MFY22 PBT of RM11mil (from 9MFY21 LBT of RM16mil) was due to more events and functions following the uplift of lockdowns in FY22. In addition, the full disposal of its loss-making 65%- owned OSC Sunrise also enhanced operating profits with its deconsolidation after the disposal was completed on 10 February 2022.

• QoQ, the group’s 3QFY22 CNP rose 11%, mainly attributed to continuing sales and on-site development activities in City of Elmina, Bandar Bukit Raja, Elmina Business Park, Serenia City and Nilai Impian township as well as contribution from land sales in Selangor and Sabah.

• Meanwhile, property investment segment’s 3QFY22 PBT grew 8% QoQ due to higher footfalls achieved during the Hari Raya festive season in KL East Mall and Melawati Mall, while its leisure segment’s PBT in 3QFY22 was boosted by higher income from corporate events and functions, higher golfing activities and increased sales from food and beverages outlets.

• We are positive on the outlook for SimeProp, premised on:
  (i) its sizable landbank (15,400 acres) located strategically on the west coast of Peninsular Malaysia with a gross development value (GDV) of more than RM100bil;
  (ii) SimeProp's ability to launch in-demand products at the right price points in strategically located townships, which has been proven by a strong take-up rate of 90% for its 9MFY22 new launches and an average take-up rate of 88% in FY19-21;
  (iii) the official launching of Battersea Power Station in 2HFY22, which would potentially drive up residential sales and commercial leases at The Power Station and Electric Boulevard; and
  (iv) its venture into fast-growing industrial land development through the establishment of an industrial development fund together with LOGOS property to build an integrated logistics park in Bandar Bukit Raja, Selangor. The fund is projected to generate recurring income (fund management fees and leasing income) starting FY23 following the expected completion of the first phase of the integrated logistics park in June 2023.

• The stock currently trades at a compelling FY23F PE of 12x vs. its 2019 pre-pandemic valuations of 14x and offers a fair FY23F dividend yield of 3%.

Source: AmInvest Research - 29 Nov 2022