SDPR achieved a core net profit of RM246.5m (+55% yoy) in 1H18, mainly from higher property sales and progress billings, which was above our forecast but within market expectations. Maintain our BUY and TP of RM1.61, based on a 50% discount to RNAV.

Improvement in Property Development and Property Investment

For 1H18, revenue increased by 33.6% to RM1.14bn, contributed by property development segment (+39.4% yoy) despite the declines in the property investment (-22.9% yoy) and hospitality (-11.9% yoy) divisions. Net profit grew by 90.1% yoy to RM559.8m in 1H18, underpinned by i) higher property sales and progress billings from Elmina East, Elmina West, Serenia City and Taman Melawati; ii) higher share of profit from Battersea; iii) gains on stake and land disposals (RM317.8m) and iv) contribution (RM10.6m) from the sale of 19 residential lots in Serenity Cove, Australia. Property investment ‘s pretax loss narrowed to RM3.5m from RM7m, given the improved occupancy rate (70.7%) for Melawati Mall.

Results Above Our Expectations

After excluding exceptional items, SDPR achieved a core net profit of RM246.5m (+55% yoy), which was within consensus estimates but 35% above our expectations due to i) higher rate of completion for Serini Tower 1&2, Taman Melawati and higher sales achieved for Viana and Tiana, Elmina East.

Maintain BUY and TP of RM1.61

We maintain our BUY call with an unchanged TP of RM1.61 (based on 50% discount to RNAV). We believe SDPR will continue to form joint ventures and dispose land parcels to realize the deep value of its behemoth land bank (12,026 acres of a total estimated GDV of RM85.9bn as at 31 Jan 2018) to boost medium-term earnings. We leave our forecast unchanged pending the analyst briefing later and will take into account the change in financial year end to December from June, in our update note.

Key Downside Risks

i) lower/slower-than-expected gain/s from the sale of investment properties, land, subsidiary/associate stakes; ii) longer-than-expected for management to generate its recurrent earnings and expand property development income; iii) weaker-than-expected property sales and iii) a prolonged downturn in the domestic property market.

Source: Affin Hwang Research - 27 Feb 2018