With 20.6k ac land bank (estimated total GDV of RM137b), Sime Darby Property Bhd (SIMEPROP) is the largest listed land bank owner and the third largest by market cap. It is predominantly a Klang Valley-based township developer. Given its large arsenal, there are active efforts to unlock value via disposal of non-core assets and inventories clearing. Initiate coverage at MARKET PERFORM with TP of RM1.25 based on 61% to its FD SoP.

Largest listed landbank owner. A township developer with over 40 years of experience and a vast landbank size of 20.6k ac with an estimated remaining GDV of RM137b but this does not include the option land agreements with its sister companies of another 20.6k which we estimate has a potential GDV of RM68b. It is also well positioned as 87% of its developable GDV is in Klang Valley where property demand is the strongest in the country. However, in terms of market cap, it is only the third largest behind SPSETIA and IOIPG.

Right products, right price segments. Over Jul-2018 to Dec-2019, SIMEPROP will launch RM3.5-4.5b worth of GDV from Klang Valley- based projects in Elmina West, Serenia City, Putra Heights and SJCC. Residentials will make up 76% of the launches with the bulk targeted to be priced below RM800k/unit. The group targets sales of RM1.0b for 6MFPE18E, which is achievable since most are township products. They are also growing the industrial segment (18% of the launch GDV) with focus on light industrial and logistics businesses in the Greater Klang Valley region. So far, 461 ac of land (c. RM5.1b GDV) has been identified for industrial development, of which, 253 ac (including strategic JVs) will be used for industrial build-to-suit facilities that will be retained for recurring income purposes. The group aspires to grow its recurring income stream with a target of 10% of PBIT by FY23. Hence, the decision to retain Pagoh Education Hub. We are also expecting sale of Battersea Phase 2 Commercial to take place, which will alleviate balance sheet concerns.

Active efforts to unlock deep values. Developers with large land banks are also prone to ‘value traps’ from an investor’s perspective. SIMEPROP has been actively rationalizing its non-core assets (RM2.5b in PBT gains from FY15-18A land sales) and selling down its inventories. They are targeting more disposals, which are expected to generate more than RM2b worth of gains over the next 4-6 years. Completed inventory as of FY18 stood at RM836m at cost, of which 57% is from Alya and The Glades, which are high-end projects priced >RM1m/unit. Management is taking active efforts to clear its inventories, which may involve margin squeeze as the preference is to clear inventories for cashflow. Positively, the group has a low net gearing of 0.18x.

FY19-20E CNP of RM420m-RM607m on the back of new property sales of RM2.33–2.34b and expected land sale gains. FY19-20E dividend yields are expected to be at 2.1-3.0%1.

Initiating coverage at MARKET PERFORM and TP of RM1.25 based on 61% discount to our FD SoP of RM3.24. Our applied discount is based on the average of our applied RNAV discount for IOIPG (68%) and SPSETIA (54%) being SIMEPROP’s direct comparisons.

Risks include; (i) stronger/weaker-than-expected property sales, (ii) margin fluctuations, (iii) changes in real estate policies, and (iv) changes in lending environment.

Source: Kenanga Research - 01 Oct 2018