Investment Highlights

• We maintain BUY on Sime Darby Property (SimeProp) with a higher fair value (FV) of RM0.82/share (from RM0.68/share previously), which implies a FY24F PE of 15x, close to the average of the larger cap property stocks currently. We made no changes to our 4-star ESG rating (Exhibits 5, 6).

• The higher FV stems from the lower discount rate of 45% (from 55% previously) to RNAV, which results from improving sentiments in overall property market in Malaysia with the anticipation of revival of mega infrastructure projects and the potential relaxation of the conditions for the Malaysia My Second Home (MM2H) program.

• SimeProp’s 1HFY23 core net profit (CNP) of RM126mil made up 41% of both our FY23F earnings and street’s. Nevertheless, we deem 1HFY23 earnings to be within expectation in view of the strong sales momentum and acceleration of progress billings for the group’s Malaysian projects (unbilled sales of RM3.6bil) given the improvement in labour market conditions. Hence, we have made no changes to our earnings forecasts.

• In 1HFY23, the group’s property development PBT fell 3% YoY despite a 27% increase in revenue. The stronger revenue from higher on-site development activities of its Malaysian projects was more than offset by higher share of loss from the Battersea Power Station due to escalating operating, marketing and selling expenses.

• Given the strong sales momentum seen in 1HFY23, SimeProp raised its FY23F sales target to RM2.7bil from RM2.3bil and planned launches to RM4bil from RM3bil.

• SimeProp’s 1HFY23 new sales fell 23% YoY to RM1.5bil, attaining 56% of its revised FY23F sales target of RM2.7bil (Exhibit 3). The main sales contributors are industrial (40%), residential landed (37%) and residential high-rise (21%) properties.

• SimeProp’s 1HFY23 launches of RM2bil (vs. RM1.2bil in 1HFY22) accounted for 50% of its revised FY23F targeted launches of RM4bil. This consists of a diverse mix of residential landed properties (49%), residential high-rise components (30%), industrial offerings (18%) and commercial products (3%).

• As at 20 August 2023, SimeProp achieved a strong average take-up rate of 82% for all its products launched in 1HFY23. Residential landed products recorded a notable average take-up rate of 80% while industrial offerings achieved an average take-up rate of 88%. For its residential high-rise, the take-up rate was 73%.

• The group’s strong bookings of RM1.9bil (+19% QoQ) as at 6 August 2023 and high bookings-t- sales conversion rate of 70%–80% will further support its sales prospects in FY23F.

• QoQ, the group’s unbilled sales were RM3.6bil (+6% QoQ), which represents a cover ratio of 1.4x FY23F revenue (Exhibits 3). In view of the acceleration of construction progress given the recovery in foreign labour market, we anticipate 40%-50% of its unbilled sales will be recognised in FY23.

• The property investment segment’s 1HFY23 PBT slumped 74% YoY despite a flattish revenue YoY. This was mainly due to recognition of share of loss of RM15mil (vs. share of profit of RM3mil in 1HFY22) from joint ventures and associates.

• The leisure segment’s 1HFY23 PBT plunged 94% YoY to RM0.6mil, which was mainly due to rising operating costs and expenses incurred on intensifying golf course maintenance activities ahead of the Ladies Professional Golf Association tournament in October 2023.

• QoQ, the group’s 2QFY23 CNP grew 20%, mainly attributed to stronger property sales (+18% QoQ) and improving onsite development activities in City of Elmina, Bandar Bukit Raja, Nilai Impian, Elmina Business Park and Serenia City.

• Overall, we are positive on the outlook for SimeProp, premised on:
  (i) its sizeable landbank (15,434 acres) located strategically on the west coast of Peninsular Malaysia with a gross development value (GDV) of RM119bil;
  (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 FY22 new launches and an average take-up rate of 88% in FY19-22;
  (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 FY23F, following expected completion of the first phase of the integrated logistics park in 4Q2023 (Exhibit 9).

• The stock currently trades at a compelling FY24F PE of 13x vs. its 2018-2019 pre-pandemic valuations of 17x and offers a fair dividend yield of 3.6%.

Source: AmInvest Research - 29 Aug 2023