Highlights

• We organized a half-day site visit to Sime Darby’s property township projects and land bank in the southern part of Klang Valley (namely Nilai Impian, Chemara Hills, Bandar Ainsdale, and Planters’ Haven), to gauge the property development potential there.

• Nilai Impian - The township project sits on 1,808 acres of land, with a total GDV of RM4.5bn. We understand that Sime Darby aims to transform Nilai Impian into a commercial gateway in Nilai town, with 142 acres of land bank there being allocated for future development of commercial properties, supported by hotels, offices, retail mall, educational institutes and a medical centre. Given the strategic location and reasonable pricing range, we believe projects in Nilai Impian will continue to enjoy good take-up.

• Bandar Ainsdale (Seremban) - Comprising 562 acres of Freehold Township with total GDV of RM2.2bn (and could potentially increase to RM3bn). We understand that Bandar Ainsdale is well positioned to become the new gateway for Seremban, given the new KTM Komuter station and the recent completion of New Seremban Interchange (which would divert traffic to Bandar Ainsdale, hence boosting economic activities in Bandar Ainsdale).

• The recent changes in affordable housing policy (which now requires 50% of new houses to be priced below RM400k per unit) and increase in bumiputra ownership quota (from 30% previously to 50%) for new residential schemes in Negeri Sembilan will have minimal impact on Sime Darby’s property sales there, given that some of its existing property township projects already comprised of circa 50% bumiputra buyers. Earnings

Forecasts

• FY06/15-17 net profit forecasts maintained for now, pending release of 4QFY06/15 financial results on 26 Aug 2015.

Catalysts

• Higher-than-expected FFB output growth;

• CPO prices strengthen further; and

• Recovery in property demand sentiment.

Risks

• Sharp fall in FFB output and/or palm product prices at the plantation division;
• Prolonged weak demand for mining equipment; and
• Delay in property launches.

Rating

SELL

Negatives

• (1) Cooling economic activities in China and Australia may have adverse impact on Sime Darby’s earnings; and (2) Overseas expansion risk.

Positives

• Strong balance sheet.

Valuation

• Maintain Sell recommendation, with unchanged SOP-derived TP of RM7.65.

Source: Hong Leong Investment Bank Research - 4 Aug 2015