SIMEPROP’s FY22 results beat expectations on bumper billings and higher margins in 4QFY22. The record property sales of RM3.7b in FY22 also surpassed our assumption and its own internal targets. Sitting comfortably on RM3.6b unbilled sales, it intends to hold back launches to prioritise margins preservation. We raise our FY23F net profit by 8% and maintain our asset based TP of RM0.55, and OUTPERFORM call.

Above expectations. FY22 core net profit of RM336m (adjusted for RM52m gains from disposal of subsidiaries, RM13m impairment of investment properties/inventories, RM44m for FV loss on investment properties and RM13m loss on lease modification) beat our forecast and consensus estimate by 39% and 42%, respectively. The variance against our forecast came largely from bumper billings and higher margins in 4QFY22.

FY22 core net profit more than doubled YoY thanks to higher revenue (+24%) and better margins from a broad-based recovery at all its three business units (property development, property investment and leisure) against a pandemic-stricken period a year ago.

FY22’s record high sales of RM3.7b (backed by RM2.6b new launches) surpassed both our full-year assumption of RM3.2b and its internal full-year target of RM2.6b. The strong sales achieved were backed by: (i) right product pricing within its matured townships, and (ii) effective and targeted digital marketing strategy through social media platforms i.e. Facebook (273k followers) and Instagram (31k followers).

For FY23, we target a lower sale assumption of RM2.8b as the group had previously guided that it intends to hold back launches to preserve its healthy margins amidst the record high unbilled sales of RM3.6b which should provide earnings visibility for the next three years.

Riding on the post pandemic recovery, its KL East Mall’s occupancy increased to 85% (from 71% a year ago) while Melawati Mall continues to show improved occupancy rates and footfall.

We raise our FY23F earnings by 8% after adjusting for the record beating sales in FY22 and higher margin assumptions. We also introduce new FY24F earnings of RM312m. Maintain 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 TP based on ESG given a 3-star rating as appraised by us (see Page 5).

We continue to like SIMEPROP for: (i) its wide product 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. 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 Mar 2023