Value Emerging

Sime Darby Property’s (SDPR) share price fell 20% to RM1.20 from its reference price of RM1.50 on the first day of listing on the Main Board Property Sector on 30 November 2017. We believe valuation is now attractive, at a 63% discount to RNAV/share of RM3.22, unjustified given that SDPR is the largest property developer in terms of land bank. Other property stocks under coverage are trading at average discount of 40% to RNAV. We upgrade our call on SDPR to BUY from Hold with unchanged TP of RM1.61, based on 50% discount to RNAV.

A Massive and Well-situated Land Bank

SDPR has a well-located land bank in Peninsular Malaysia measuring a total of 20,763 acres with a gross development value of RM100.4bn. It has the largest domestic land bank among the Malaysian property developers and most of the land bank was acquired previously at low historical cost.

Earnings Sustainability a Concern

Earnings for SDPR have been supported by gains from the sale of investment properties, land, subsidiary/associate stakes. Thus, earnings sustainability is dependent on management’s ability to generate recurrent earnings from property investments (target 10% of operating profit by 2022) and expand property development income.

Directions From the Top

We believe the presence of Tan Sri Abdul Wahid Omar as the NonIndependent Non-Executive Chairman of SDPR will ensure the execution of management’s plan to accelerate the development of its land bank and monetise some of its assets. Wahid is also Chairman of Permodalan Nasional Bhd (PNB – major shareholder of SDPR) and he was instrumental in the restructuring of UEM Group, Telekom/Axiata and Maybank previously to enhance long-term shareholders value and improve operating efficiency. His presence on the Board of Directors (BOD) in SDPR and not on the BOD of Sime Darby and Sime Darby Plantation indicates his focus on driving the restructuring of SPDR.

Upgrade to BUY

We upgrade our call on SDPR to BUY from Hold on an unchanged 12-month target price of RM1.61, based on a 50% discount to RNAV. Current FY18E PER of 12x is attractive but EPS sustainability is a key concern.

Source: Affin Hwang Research - 4 Dec 2017