Sime Darby Property (Simeprop)’s 1H23 net profit of RM126mn made up 38.9% and 41% of our and consensus’ full year forecast respectively. Overall, we deem this as within our estimate in anticipation of stronger earnings in 2H23 on the back of strong sales performance and high unbilled sales. On quarterly basis, 2Q23 core earnings increased by 14% YoY due to resilient performance of stronger sales and profit contribution from both industrial and residential products. We remain optimistic on Simeprop's business prospects, particularly in the property development segment, reflecting the increase in on-site development activities in Bandar Bukit Raja, Nilai Impian, Elmina Business Park, and Serenia City townships. Maintain a BUY call with a higher TP of RM0.86, pegged at 0.6x P/B to FY24F BVPS of RM1.43. This implies a +0.6 Std. Dev. above its 5-yr historical average forward P/B of 0.5x.

• Within expectations. 1HFY23 core net profit of RM126mn (YoY: +18.4%) made up 38.9% and 41% of our and consensus’ full year forecast respectively. We deem this as within our estimate in expectation of stronger 2H23 earnings on the back of strong sales performance and high unbilled sales.

• Dividend. The company declared a first interim DPS of 1sen.This implies dividend payout of RM68mn.

• QoQ. Simeprop’s 2QFY23 revenue slightly higher by 0.5% QoQ while Simeprop’s core earnings jumped by 19.5% QoQ, thanks to contribution from increased sales in industrial and residential products and on-site development activities in City of Elmina, Bandar Bukit Raja, Nilai Impian, Elmina Business Park and Serenia City. The improvement in the current quarter segment's profit is also attributed to a lower share of loss from joint ventures and associate of RM10.0mn, as compared to RM16.1mn in the preceding quarter.

• YoY/ YTD. Top-line and bottom-line increased by 25.4% YoY and 18.4% YoY respectively. The main factor behind this positive outcome is the growth in sales and profits from both industrial and residential products. Additionally, the revenue of the IAM segment rose to RM52.5mn in 1HFY2023, fuelled by growth in the retail sub-segment, particularly KL East Mall, which experienced an occupancy rate increase from 81% to 86%. However, despite these positive developments, the IAM segment still suffered losses due to higher share loss from a joint venture.

• Outlook. In the first half of FY2023, the company introduced new projects worth RM2.1 billion, accounting for 70% of its full-year launch target of RM3.0bn. These offerings were diversified to cater to market demands, with 49% allocated to residential landed properties, 30% to residential high-rise buildings, 18% to industrial developments, and 3% to commercial projects. Currently, the overall take-up rate for all products stands at an impressive 82%. The industrial products segment achieved an average take-up rate of 88%, with significant contributions from fully sold-out projects like The Prestige Collection Signature Factories in Elmina Business Park and the industrial offerings in Bandar Universiti Pagoh. Similarly, XME Business Park Phase 2C in Nilai Impian recorded an impressive 94% take-up rate. Simeprop has adjusted its sales objective from RM2.3bn to RM2.7bn, and its GDV launch objective from RM3.0bn to RM4.0bn. Currently, Simeprop's unbilled sales stood at RM3.8bn, with a remaining GDV of RM119bn.

Our call. Maintain a BUY call with a revise TP of RM0.86, pegged at 0.6x P/B to FY24F BVPS of RM1.43. This implies a +0.6 Std. Dev. above its 5-yr historical average forward P/B of 0.5x. We believe this is justifiable given steady earnings improvement moving forward, owing to (i) the monetization of its land bank, (ii) recognition from on-site progress property projects, (iii) an increase in recurring income from booming demand for industrial properties and (iv) strong 2023 new launch pipeline of RM4bn (FY22: RM2.6bn)

Source: BIMB Securities Research - 29 Aug 2023