1QFY22 CNP of RM47.2m came broadly within our/consensus estimates. 1QFY22 sales of RM0.89m are also in line. Backed by c.RM2.4b of remaining launches coupled with their effective cost controls, we believe SIMEPROP is poised to meet sales and earnings targets. Keep FY22-23E earnings and reiterate OP with unchanged TP of RM0.725 pegged to 0.53x FY22E PBV.

Broadly within expectations. 1QFY22 CNP of RM47.2m came broadly within our/consensus expectation at 20%/19% of full-year estimate. No dividends declared as expected.

Sales also broadly in line. 1QFY22 sales of RM0.89b (backed by RM0.38b of launches) was also broadly within our/management’s RM2.5b/RM2.6b target hitting 36%/34%. Despite the strong sales performance, we choose to remain conservative given the inflationary environment coupled with potential OPR rates hikes for the rest of the year which would erode national affordability of big ticket items (i.e. properties). SIMEPROP has earmarked another c.RM2.4b worth of launches for the rest of the year (total RM2.8b launches planned in FY22). Unbilled sales stood at a record high of RM2.8b as of 1QFY22 (providing c.1.2x revenue cover).

Highlights. QoQ, 1QFY22 CNP of RM47.2m decreased 34% mainly on lower revenue (-35%) as there were lower site progress and lower property sales of RM0.89b in 1QFY22 vs RM1.02b in 4QFY21. Breaking down the composition of sales, previous quarter also had more completed property sales which allowed for immediate earnings recognition. The lower site progress experienced this quarter was caused by shortage of labor. YoY, 1QFY22 CNP came off 24% due to similar reasons i.e. the drop in revenue (-19%) caused by slower site progress and lower sales of completed properties.

Prospects. Despite the challenging landscape faced by developers, we believe SIMEPROP would continue to deliver earnings and meet sell-side estimates, attributable to their ability to adapt. Case in point, they have been able to keep their selling and marketing expenses low by leveraging on social media platforms for effective digital marketing. Cost controls at their project construction level have also been great as evidenced by their strong GP margin of 28% in 1QFY22 despite inflationary pressures.

Also, they have been launching the right products at the right areas which explain their close to 100% take-up rates within a short period from launch (1QFY22 launches have an average 98% take-up). Completed inventories have also come off substantially by 40% to RM302m from a year ago. We credit these extraordinary metrics to the management’s ability alongside SIMEPROP’s prime land banks.

Maintain FY22-23E earnings post results. Consequently, we keep OUTPERFORM with unchanged TP of RM0.725 based on FY22E PBV of 0.53x pegged to -0.5SD from its 5-year mean. Against peers, SIMEPROP has more robust earnings visibility and is less affected by the high-rise oversupply given its vast land banks suited for landed/industrial products. Coupled with its credible management, we believe SIMEPROP would be one of the first few developers to rerate when the headwinds currently faced by the broad property sector subside.

Source: Kenanga Research - 25 May 2022