Investment Highlights

• We maintain BUY on Sime Darby Property (SimeProp) with an unchanged fair value (FV) of RM0.82/share, based on a 45% discount to our sum-of-parts valuation, which implies 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 6-7) which accords a 3% premium to our SOP.

• We made no changes to our earnings forecasts as SimeProp’s 9MFY23 core net profit (CNP) of RM224mil (after excluding the one-off gain from land sale of RM53mil) came in within expectation. It made up 72% of both our FY23F earnings and street’s.

• In 9MFY23, the group’s property development revenue grew 39% YoY to RM2.3bil while PBT surged 42% YoY to RM429mil. The stronger revenue from higher on-site development activities of its Malaysian projects, coupled with contribution from RM86mil sale of lands in Negeri Sembilan and Kedah, which generated PBT of RM70mil and PAT of RM53mil.

• SimeProp’s 9MFY23 new sales fell 9% YoY to RM2.5bil, attaining 93% of its FY23F sales target of RM2.7bil (Exhibit 3). This was the highest quarterly sales recorded since FY18. We expect SimeProp’s FY23F sales to surpass its sales target, backed by its RM800mil worth of planned launches in 4QFY23.

• The main sales contributors in 9MFY23 are residential landed properties (38%), industrial (33%) and residential high-rise (22%) (Exhibit 4).

• SimeProp’s 9MFY23 launches of RM3.2bil (vs. RM2.1bil in 9MFY22) accounted for 80% of its FY23F targeted launches of RM4bil. This consists of a diverse mix of residential landed properties (46%), residential high-rise components (28%), industrial offerings (21%), commercial products (1%) and others (4%).

• As at 5th November 2023, SimeProp achieved a strong average take-up rate of 75% for all its products launched in 9MFY23. Residential landed products recorded a notable average takeup rate of 70% while industrial offerings achieved an average take-up rate of 86%. For residential high-rise, the take-up rate was 79%.

• The group’s strong bookings of RM2.2bil (+16% QoQ) as at 5 November 2023 and high bookings-to-sales conversion rate of 70%–80% will further support its sales prospects in FY23FFY24F.

• QoQ, the group’s unbilled sales were RM3.7bil (-3% QoQ), which represents a comfortable cover ratio of 1.2x FY24F revenue (Exhibits 3). In view of the acceleration of construction progress given the recovery in the number of foreign workers, we anticipate 40%-50% of its unbilled sales will be recognised in FY24F.

• The property investment segment’s 9MFY23 PBT slumped 57% YoY despite only 1% decline in revenue YoY. This was mainly due to recognition of share of loss of RM3mil (vs. share of profit of RM22mil in 9MFY22) from joint ventures and associates.

• The leisure segment’s 9MFY23 LBT was RM2mil vs. PBT of RM11mil in 9MFY23, 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 3QFY23 CNP rose 42% to RM98mil, mainly attributed to stronger property sales (2.1x QoQ), coupled with improving progress billings in Malaysian projects.

• Overall, we are positive on the outlook for SimeProp, premised on:
  (i) its sizeable landbank (15,322 acres) located strategically on the west coast of Peninsular Malaysia with a gross development value (GDV) of RM117bil;
  (ii) SimeProp's ability to launch in-demand products at the right price points in strategically located townships, which have been proven by a strong take-up rate of 75% for 9MFY23 new launches and an average take-up rate of 88% in FY19-22;
  (iii) 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 from fund management fees and leasing income, starting from FY24F following the expected completion of the first phase of the integrated logistics park next year.

• The stock currently trades at a compelling FY24F P/E of 11x vs. its 2018-2019 pre-pandemic valuations of 17x and offers a fair dividend yield of 4%.

Source: AmInvest Research - 24 Nov 2023