KUALA LUMPUR (Jan 23): Hong Leong Investment Bank (HLIB) is optimistic about Sime Darby Property Bhd's prospects given its exposure to the thriving industrial segment and improving residential landed market in the Greater Klang Valley area.

Against this backdrop, the research house maintained its “buy” call on Sime Darby Property and raised its target price by 29.63% to RM1.05, based on a 50% discount to the estimated revised net asset value of RM2.10.

In a note on Tuesday, HLIB said it saw an increasing industrial contribution to Sime Darby Property’s sales, from 0% in 2019 to 33% of its sales in the nine months ended Sept 30, 2023, attributed to strong foreign direct investment in Malaysia.

“Currently, the industrial segment has a higher margin, and also a faster construction time compared to residential.

“Sime Darby Property is the best proxy for the segment, as it is the largest industrial developer in Malaysia, with more than RM15 billion in remaining gross development value (GDV), and with land located in very strategic locations close to Port Klang and the upcoming East Coast Rail Link (ECRL) stations,” the research house added.

Meanwhile, green shoots are emerging in the residential landed property market in the Greater Klang Valley, marked by improving take-up rates of landed township developments in both Klang Valley and the surrounding areas of Negeri Sembilan, HLIB stated.

The research house foresees rising demand and house price appreciation in this segment that could be sustained for years to come.

It stated several factors for this, including the growing number of people working in Kuala Lumpur, limited supply of landed homes given the increasingly scarce land supply in Kuala Lumpur, more benign competition with fewer developers in this space, and improving road and railway infrastructure connecting the city centre to Selangor and Negeri Sembilan.

“Landed residential is Sime Darby Property’s forte. As 94% of the group’s remaining GDV is in the Greater Klang Valley region, the group is poised to greatly benefit from this trend,” added HLIB.

The research house believes Sime Darby Property is ready to move forward aggressively as its labour shortage is now resolved, coupled with well-planned strategies.

“Firstly, the group is diversifying and adding industrial to its product mix, in addition to residential land and high-rise, essentially giving it three channels of growth running in parallel.

“Secondly, the group is expediting the pace of land bank activation through efforts such as developing a fund management platform to tap into third-party funds and external expertise, building solar farms, and disposing of non-core land,” HLIB added.

At the time of writing on Tuesday, Sime Darby Property was traded up 1.5 sen or 2.11% at 72.5 sen a share, translating into a market capitalisation of RM4.86 billion.