Largest landbank owner with strategic locations. SIMEPROP 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 near existing 24 active townships as well as integrated and niche developments (~RM89bn worth of GDV), with the bulk of it located in Klang Valley, Negeri Sembilan and Johor while being strategically connected to major highways. Besides, the group has additional access to 20k acres under the Option Agreements with its sister companies, which are valid for 5 years (effective Nov 2017). Overall, we believe SIMEPROP is able to navigate the current challenging property landscape well as (i) the bulk of the land bank was acquired previously at low historical cost, which should provide product and pricing flexibilities; and (ii) it will be able to capitalise on its massive landbank and identify strategic locations to replenish and activate in suitable timing following the sector dynamics, coupled with (iii) an orderly monetization programmes by SIMEPROP.

Unjustifiably valued. SIMEPROP’s share price tumbled 25.8% from a 52-week high of RM0.795 to close at RM0.59 last Friday, a 70% discount to our RNAV/share of RM1.95 (vs average discount of 63% to RNAV for other HLIB-covered property stocks). We believe such a steep discount is unjustified given that the group is the largest property developer in Malaysia.

Optimistic outlook. Despite potential rate hike in 2H22, an absence of HOC and persistent overhangs, we reckon that SIMEPROP will be able to achieve the conservative FY22 sales target of RM2.6bn (-13% YoY), underpinned by an unbilled sales of RM2.4bn, proposed RM2.8bn GDV launches for FY22 with strategic product mix (c.81% residential, c.16% industrial) within its well-suited landbank, as well as the re-opening of Malaysia’s borders on 1 April (set to benefit from strong foreign demand which was previously deterred by the lockdowns).

Potential downtrend reversal amid a hammer formation. After hitting a 52-week high at RM0.795 (18 Oct), SIMEPROP had corrected 32% to a low of RM0.54 (21 Mar) before ending at RM0.59 last Friday. The Hammer pattern signals a potential capitulation by sellers to form a bottom, accompanied by bottoming up technical indicators. A strong breakout above RM0.60 will spur prices to re-challenge RM0.63 (downtrend line) and 0.67 (50R% FR) before advancing to LT objective at 0.735 (76.4% FR). Accumulation range is pegged at RM0.54-0.57-0.59. Cut loss at RM0.525.

Source: Hong Leong Investment Bank Research - 28 Mar 2022