SIMEPROP’s 1HFY24 results beat expectations. Its 1HFY24 core net profit excluding land sales more than doubled, driven by strong sales of residential products. It is also raising its sales guidance for FY24. Diluting wins at home turf, however, are Battersea JV losses that are deepened by profit guarantee clauses which could persist. Factoring this, our FY24-25F earnings forecasts are lifted by 6% and 7%, versus a higher TP by 26% to RM1.36 (from RM1.08) as we factored quicker-than-expected sales momentum. We keep our MARKET PERFORM call.

SIMEPROP’s 1HFY24 core net profit of RM285.5m beat expectations, coming in at 67% and 63% of our full-year forecast and the full-year consensus estimates, respectively. The positive variance against our forecast came largely from stronger-than-anticipated sales of residential products.

YoY, its 1HFY24 revenue rose 59%, primarily driven by robust sales in its property development arm, coupled with material land sales in City of Elmina and Lembah Acob. Meanwhile, losses from its joint venture extended by 125% as Battersea reported negative adjustments from rental guarantees incurred, which is likely to repeat into subsequent quarters. Despite a tax increase of 112%, core net profit still grew by 117% to RM285.5m supported by a stable overall operating landscape.

QoQ, its 2QFY24 revenue inclined 23%from the above-mentioned. This led to its core net profit to grow by31% on a better product mix which more than offset sustained losses from its joint ventures.

Outlook. SIMEPROP’s unbilled sales stand at RM3.7b which should support its earnings visibility for the next three years. On signs of demand picking up, The Ophera at KLGCC has achieved 81% take-up rate, while Elmina Ridge 1 has reached 95% take-up rate. Meanwhile, the outlook for its bread-and-butter residential and industrial products remains positive. Consequently, the group has raised its FY2024 sales target by 17%, from RM3.0b to RM3.5b, and as of 11 August 2024, overall bookings hit RM2.2b.

We note that its Battersea JV will be in a pinch in the medium-term as its works to meet its profit guarantee obligations, following the recent completion and handover of certain office towers there. Until this could be resolved, it will offset headways made by SIMEPROP’s stronger property developments unit.

Forecast. We raise our FY24F-FY25F earnings forecasts by 6% and 7%, respectively.

Valuations. We lift our TP by 26% to RM1.36 (from RM1.08) as we reflect the improved realisability of its GDV and recalibrate our NPV estimates while maintaining our discount to RNAV of 55% (align with industry 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 reduces 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, market may have already priced in stronger sentiment for property counters. Maintain MARKET PERFORM.

Source: Kenanga Research - 23 Aug 2024