Investment Highlights

• We maintain BUY on Sime Darby Property (SimeProp) with a higher fair value (FV) of RM0.83/share (from RM0.82/share previously), 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 2-3) which accords a 3% premium to our SOP.

• SimeProp through its wholly-owned Seed Homes signed a shareholders’ agreement with Lagenda to set up Seed Homes Lagenda, a 50:50 joint venture to develop affordable homes.

• Seed Homes Lagenda is set to embark on its first affordable township project in Gurun, Kedah via the acquisition of a 249-acre of land from Sime Darby Property.

• While fine-tuning FY24F earnings, we raise FY25F CNP by 1% to factor in the earnings contribution from this joint venture.

• The estimated gross development value (GDV) is expected to be RM750mil, to be developed over a span of 3-4 years.

• The township is anticipated to comprise 3,000 units of single-storey terrace house, with an average selling price of not more than RM250K/unit.

• The land price of RM50mil translates to RM4.60 psf and implies a land cost-to-GDV ratio of 6.6%, which is lower than the industry’s average land cost-to-GDV ratio of 15%- 20%.

• Seed Homes Lagenda plans to launch the first phase of the Gurun project by the end of FY24 or in early 2025.

• We hold a favorable view on this development, which leverages on its strategic location and the potential spillover effects of industrial growth in Gurun. Moreover, this collaboration will assist SimeProp in unlocking the value of its land bank and entering the highly sought-after affordable housing segment.

• The stock currently trades at a compelling FY24F P/E of 14x vs. its 2018-2019 pre-pandemic valuations of 17x and offers a fair dividend yield of 3%.

Source: AmInvest Research - 26 Jan 2024