SIMEPROP's 9MFY24 results beat expectations. Its 9MFY24 core net profit doubled YoY driven by strong sales of residential and industrial products, having achieved 91% of its FY24 sales guidance so far. We raise our FY24F/FY25F earnings forecasts by 20%/16% to reflect our expectations of better sales. We also derive a higher TP by 16% to RM1.58 (from RM1.36) as we factored quicker-than-expected sales momentum, lowering our discount to RNAV from 55% to 50%. Upgrade to OUTPERFORM from MARKET PERFORM.

SIMEPROP's 9MFY24 core net profit of RM413.8m beat expectations, coming in at 91% and 84% 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 and industrial products.

YoY, its 9MFY24 revenue rose 35%, primarily driven by robust sales in its property and industrial development products. Despite a tax increase of 35%, core net profit still grew by 50% to RM413.8m supported by a better overall operating landscape. This more than cushioned the doubling of losses in its joint venture contributions, no thanks to lease guarantee provisions made by Battersea amounting close to RM120m (or RM48m from SIMEPROP's 40%-stake according to news sources).

QoQ, its 3QFY24 revenue declined by 9% from slower sales during the quarter. JV contributions saw a 47% improvement and the abovementioned provisions which were incurred in 2QFY24. Adjusting for it would still reflect a worsening of 17% as market conditions in the UK likely remains tepid. 3QFY24 core net profit still declined by 21%.

Outlook. SIMEPROP's unbilled sales stand at RM3.7b which should support its earnings visibility for the next five years. Additionally, the outlook for its bread-and-butter residential and industrial products remains positive. In 3QFY24, total sales were RM1.0b, and the group has achieved 91% its FY2024 sales target of RM3.5b, and as of 31 October 2024, overall bookings hit RM1.9b.

Forecast. We raise our FY24F and FY25F earnings by 20% and 16%, respectively, as we increased our sales for their residential products (from RM3.5b to RM3.7b).

Valuations. In addition to the earnings adjustment, we lift our TP by 16% to RM1.58 (from RM1.36) as we reflect the improved realisability of its GDV and recalibrate our NPV estimates while reducing our discount to RNAV to 50%, from 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. Upgrade to OUTPERFORM from MARKET PERFORM.

Source: Kenanga Research - 21 Nov 2024