SIMEPROP is on track to meet its sales target of RM3b in FY24, having already reported sales of RM955.9m in 1QFY24. It is broadening its product portfolio with more high-rise residential and industrial products. It is investing in a RM2b hyperscale data centre. We maintain our forecasts, TP of RM1.08 and MARKET PERFORM call.

We came away from SIMEPROP’s results briefing yesterday feeling positive on its near-term outlook. The key takeaways are as follows:

1. It is on track to meet its sales target of RM3b in FY24, having already reported sales of RM955.9m in 1QFY24. Our forecasts assume higher FY24 sales of RM3.5b as SIMEPROP tends to be conservative in its sales targets. As at end-Mar 2024, its unbilled sales stood at RM3.6b (maintained since end FY23: RM 3.6b)

2. SIMEPROP is broadening its product portfolio with more high-rise residential and industrial products to seize the opportunities in the market.

3. SIMEPROP is exploring measures like restructuring the Battersea team and cautiously launching there. Its losses at Battersea increased in 1QFY24 with no immediate signs of improvement.

4. In 1QFY24, the average take-up rate for all its products was 80%. More specifically, high-rise residential achieved 80% while industrial hit 73%. It is worth noting that residential high-rise makes up 25% of its total sales, an indication high-rise residential has increasingly become an important segment.

5. Its Elmina Lakeside Mall has reached 85% occupancy on pre- opening, while KL East Mall has achieved a 90% occupancy rate with improving yields thank to higher average rentals upon renewals.

Separately, it yesterday announced that it is investing in a hyperscale data center valued up to RM2b, to be leased to Raidan APAC Pte. Ltd. at its Elmina Business Park, Selangor. The 20-year lease commences upon project completion, with the option for renewal for an additional five years. Subsequently, there is the option of extending the lease for another five years. The data center, set to be completed in FY26 is on a 49-acre plot within the 1,500-acre Elmina Business Park. We are positive on the latest development as it adds on to its investment property portfolio and grows its recurring income stream. However, contribution from the new investment will be beyond our forecast period.

Forecasts. Maintained.

Valuations. We also maintain our TP of RM1.08 based on an unchanged 55% discount to RNAV which is in line with the sector average. There is no adjustment to our TP based on ESG given a 3- star rating as appraised by us (see Page 5).

Investment case. We like SIMEPROP for: (i) its diversified portfolio in both landed residential and industrial products which reduce its dependency on residential high-rise products, (ii) strong foothold in matured townships, (iii) proactive initiatives to boost recurring income via strategic investments. That said, its valuations are rich at the current level. Maintain MARKET PERFORM.

Risks to our call include: (i) elevated mortgage rates eroding affordability, (ii) consumers delaying purchases of big-ticket items including properties on weak spending confidence amidst sustained high inflation, (iii) construction cost inflation, and (iv) risks associated with overseas operations including forex.

Source: Kenanga Research - 24 May 2024