SIMEPROP guided for strong 9MFY22 sales momentum to extend into early-FY23. However, it alluded that FY23F sales would soften due to lower launches on labour constraints. It has made a conscious decision to hold back launches while waiting for its contractors to beef up their labour workforce. This will translate to more optimum and lower contracting cost for SIMEPROP. We maintain our forecasts, TP of RM0.55 and OUTPERFORM call.

The key takeaways from SIMEPROP’s post-3QFY22 results briefing are as follows:

1. SIMEPROP attributed its strong 9MFY22 sales of RM2.7b to: (i) aggressive launches worth RM2.1b in 9MFY22, and (ii) strong demand for its landed residential and industrial properties. While the company expects the strong sales momentum to extend into early FY23, it guided for lower sales for FY23 as it intends to hold back launches amidst the lingering labour shortage issue. SIMEPROP made RM10.6m provision due to labour shortage in 3QFY22.

2. SIMEPROP has planned launches worth RM500m in 4QFY22 comprising: (i) its bread-and-butter landed residential worth c.RM150m, and (ii) two high-rise developments in Melawati Heights and Putra Heights totalling c.RM350m. Its unbilled sales stood at record high of RM3.5b as at end-September 2022.

3. Meanwhile, Battersea’s 9MFY22 sales of GBP247m was satisfactory but the market condition remains challenging amidst a high interest rates environment and a weak economic backdrop. Our loss forecasts for Battersea (40% JV stake) are consistent with SIMEPROP’s downbeat guidance for the project’s near-term outlook.

4. SIMEPROP-LOGOS JV has commenced construction for E-Metro Logistic Hub 1 (with 800k square feet of leasing space) in Bandar Bukit Raja (Klang), scheduled for completion in mid-2023. The company has received encouraging enquiries for the space and is hopeful to secure a tenant soon (either one single tenant or multiple tenants). In view of the strong demand for the industrial logistic space, the JV has decided to commence construction for E-Metro Logistic Hub 2 which would add on another 1.2m square feet of leasing space within the vicinity.

We continue to like SIMEPROP for: (i) its wide products range enabling it to still cash in on landed residential and industrial products while the high-rise segment is weighed down by oversupply, (ii) its mature township projects that provide recurring sales, and (iii) its seemingly effective digital marketing through social media platforms, in addition to the conventional sales channels.

Post briefing, we maintain our forecasts and TP of RM0.55 based on an unchanged 65% discount to RNAV – in line with peers’ discount range of 60-65%. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). Maintain OUTPERFORM.

Risks to our call include: (i) a prolonged downturn in the local property market, (ii) rising mortgage rates further hurting affordability, (iii) rising construction cost, and (iv) risks associated with overseas operations.

Source: Kenanga Research - 1 Dec 2022