SIMEPROP: Buy on weakness

Buy on weakness. We believe that a multi-year property upcycle is now in motion, and the recent bash down in the KLPROP index presented an opportunity for investors to accumulate. Unlike the previous upcycle, which was primarily driven by speculative demand fuelled by external policies such as DIBS and low RPGT, we highlight that the current cycle is driven by several factors: (i) rising FDI; (ii) decentralized economic developments; and (iii) new ways of monetizing land, which are contributing to land value appreciation. These factors are more sustainable and contribute to genuine demand than the previous upcycle in 2009-2014.

Within this outlook, the industrial property segment appears more attractive than the residential segment for two key reasons: (i) it generally offers better margins; and (ii) the construction period is shorter, allowing developers to cycle investments more quickly. Among the property players listed on Bursa Malaysia, we view SIMEPROP as a key proxy for the rise in industrial development in Malaysia. The still-muted share price performance since "Black Monday" offers a favourable entry point for investors looking to accumulate on weakness.|

Prime name. SIMEPROP was one of the early movers in the industrial space, venturing into it four years ago in 2020. While many developers are still in the process of securing industrial land, SIMEPROP is already reaping the rewards. As Malaysia’s largest industrial developer, the group is strategically positioned to capitalize on the industrial sector’s multi-year growth potential. Moreover, with its vast remaining landbank in the Greater Klang Valley's landed townships, SIMEPROP is poised to ride on the improving residential landed property market, benefitting from higher selling prices. With this, SIMEPROP stands as the premier stock to ride the ongoing sector rally. Notably, the group has achieved its strongest 1H operating profit in 1HFY24 since the 2017 demerger. All in, we maintain a BUY rating with a TP of RM2.05, indicating an attractive potential upside of 45% from current level.

Building a base. SIMEPROP is currently consolidating within the RM1.34–1.43 range, with indicators showing uptick bias. A successful breakout above 1.49 will spur the share price toward RM1.59-1.70-1.82 levels. Cut loss at RM1.22.

Collection range: RM1.34-1.36-1.41

Upside targets: RM1.59-1.70-1.82

Cut loss: RM1.22

Source: Hong Leong Investment Bank Research - 28 Aug 2024