Sime Darby Property’s (SDPR) 4QFY19 net profit came in stronger than expected at RM103.0m (NM YoY, >100% QoQ) due to better margins achieved and higher property billings. For FY19, the Group reported a net profit of RM598.5m which was above our and consensus estimates, constituting c.108% and c.125% of our and consensus full year numbers respectively. We adjust our FY20/21 net profit upwards by 8.2%/16.5% after revising our margin and billing assumptions. Property sales achieved were RM3.1bn. Maintain our Outperform recommendation and RM1.30 TP, pegged at c.60% discount to our RNAV estimates given the prolonged headwinds facing the sector currently.

• FY19 revenue rose 30% YoY to RM3.2bn while Group pretax profit surged by 746.3% to RM665.7m due to higher contribution from the property development segment and one-off gains. The previous year’s loss was impacted by high impairment and tax provision. The one-off gains in the current financial year were mainly derived from disposal of properties in the leisure and hospitality segment amounting to RM245.5m, which offset disposal obligations of RM65.8m in relation to a particular property sold.

• Property development. The property development segment’s operating profit rose almost 6x to RM416.9m, driven by gains on compulsory acquisition and non-strategic land sales totaling RM138.2m. However, improved results were offset by provision and impairment totaling RM86.6m. Excluding these one-offs, the 33.2% increase in current year performance was contributed mainly by higher sales and development activities in Denai Alam, Bukit Jelutong, Nilai Utama, Bandar Bukit Raja, Serenia City and Putra Heights township, KLGCC Resort and Cantara Residences. The Group sold RM3.1bn worth of properties in FY19 and will disclose its FY20 sales target and property launches in an upcoming briefing. Unbilled sales as at end-2019 were at RM1.6bn.

Source: PublicInvest Research - 27 Feb 2020