• Cut to NEUTRAL from Buy, new MYR0.60 TP from MYR0.75, 9% upside with c.2% yield. Sime Darby Property’s 1Q22 earnings are in line. The results largely reflect ongoing economic issues including the labour shortage, as well as disruptions to the supply chain that affected site progress. 1Q22 property sales hit MYR888.9m, ie on track to meet its MYR2.6bn full-year sales target. Our lower TP reflects these issues as well as the higher inflationary pressure and weakening MYR, which will likely persist over the next 3-6 months and potentially dampen buyer sentiment.

• 1Q22 results review. The QoQ revenue decline for the property development segment was largely due to: i) The end of the Home Ownership Campaign in Dec 2021; as well as ii) slower progress billings as a result of the labour shortage and disruptions in the supply chain, which have capped the acceleration of construction works post-economic re- opening. Inventory sales also decreased, as SDPR’s completed inventories in KLGCC Resort, Taman Melawati and KL East townships are almost sold out. Meanwhile, the performance of its investment & asset management as well as leisure divisions was largely intact. The quarter also saw a gain of MYR8.9m arising from the disposal of a leisure property in Vietnam, partly offset by a MYR3.2m fair value loss. SDPR’s unsold completed inventory continued to fall, hitting a new low of MYR302m, vs MYR330m in 4Q21.

• Property sales still encouraging in 1Q22. SDPR’s new property sales amounted to MYR888.9m, vs MYR1.05bn in 4Q21. The key contributors include Bandar Bukit Raja 2 (MYR92.4m) Elmina West (MYR77.3m), Jendela Residences (MYR78.3m), Serenia City (MYR63.2m), Maya Ara (MYR69.1m), as well as the detached factories in Bandar Bukit Raja 2 (MYR112.1m). SDPR launched projects valued at MYR383.5m in 1Q22, with an average take-up rate of 98%.

• MYR2.8bn GDV launch plan for FY22. The company aims to roll out MYR803.4m in new projects in 2Q22, of which 76% are landed residential products, while 19% comprise high-rise projects and 4% are made up of commercial units. Despite the MYR1.5bn in bookings (as of 8 May), we expect 2Q property sales to be softer – given the heightening inflationary pressure and fluctuations in the MYR. Hence, the conversion of these bookings into sales may be somewhat challenging.

• Forecasts. We maintain our FY22-24 earnings forecasts. SDPR’s 1Q22 unbilled sales rose to MYR2.87bn, from MYR2.38bn as at 4Q21.

• Valuations. Our TP is now based on a 75% discount to RNAV (from 70%), and includes a 0% ESG premium/discount, as SDPR’s ESG score of 3 is in line with the country median.

Source: RHB Research - 25 May 2022