Sime Darby Property is currently the largest listed property counter (by landbank size) in Malaysia and is well-positioned to capture the demand once the market rebounds given its pipeline development which are located in growth areas and strategically connected to major highways. We initiate coverage on SDPR with a BUY recommendation and TP of RM0.78 based on a 60% discount to our estimated RNAV of RM1.95.

Largest land bank owner. Sime Darby Property (SDPR) is currently the largest listed property counter in Malaysia in terms of land bank size with an astonishing 20k acres of land bank. Within the 20k acres of land bank, 13.3k acres are located within existing 24 active townships as well as integrated and niche developments (est. RM89.3bn worth of GDV), with bulk of it located in Klang Valley. SDPR also has an additional access to 20k acres under the Option Agreements with its sister companies. The options are valid for five years (effective Nov 2017), and is extendable by three years at no additional cost.

Pipeline projects well-positioned. Despite the overall near-term property market outlook remaining lacklustre, SDPR’s land bank is well-positioned to capture the demand once the market rebounds. Most of the land bank will benefit from the close proximity to established townships, commercial areas, and growth corridors.

Well-managed Property Investment assets for recurring income. SDPR intends to achieve a 30% recurring income stream (at bottom line level) as part of their ongoing efforts to diversify its business and broaden income streams beyond property development towards becoming a sustainable real estate development company by 2025. SDPR continues to record good take up rates for its Property Investment segment whereby the 9 properties owned are valued at RM1.7bn while having an average occupancy of 75-80%. In spite of the ongoing saturated office market supply, SDPR continues to achieve good take up rates (averaging 90% in FY20) as its buildings are well located and supported by single anchor tenants.

Venturing further into industrial land development. To further enhance its source of recurring income, SDPR plans is expanding further into industrial and logistics development through a Built-to-Suit model as opposed to outright selling the plot of land or completed product. Recently, SDPR has entered into shareholder’s agreement with LOGOS Property Group to set up a 51:49 JV company with target capital commitments of c.USD200m (RM850m) from accredited and institutional investors. We are impressed by the strategic move by SDPR to channel its land bank into this growing sector, partnering with a renowned international player who is the leading logistic developer and real estate specialist in APAC.

Forecast. We project SDPR’s core net profit to be FY21: RM122.6m, FY22: RM241.9m, and FY23: RM291.7m. The sharp increase in FY21 core net profit forecast (+51.2% YoY) from FY20 stems largely from the low base effect from the recovery in progressive billings and better sales achieved. Looking further ahead, progressive billings from property launches post-lockdown (RM3.8bn launches target for 2021) will support earnings moving forward.

We initiate coverage on SDPR with a BUY recommendation and TP of RM0.78 based on a 60% discount to our estimated RNAV of RM 1.95. We like SDPR for its exposure towards township developments which are well connected, access to a huge land bank, land monetisation strategy to hasten the land bank turnover, and a healthy balance sheet at 0.32x net gearing. SDPR’s land bank is well-positioned to capture the demand once the market rebounds as the planned developments are situated within key growth areas and economic corridors from central Klang Valley to Negeri Sembilan and Johor while being strategically connected to major highways.

Source: Hong Leong Investment Bank Research - 15 Feb 2022