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Maintain NEUTRAL, with new MYR0.53 TP from MYR0.60, 10% upside. Sime Darby Property’s collaboration with LOGOS SE Asia Pty Ltd is expected to help accelerate landbank turnaround. However, competition may be intense given the upcoming supply of industrial space that is targeting the same e-commerce/3PL segments. Still, prevailing market headwinds will likely affect demand for property, and market sentiment. We therefore tweak our discount rate and margin assumptions in our valuation. Based on an unchanged 75% discount to RNAV, and 0% ESG premium/discount, our TP is now MYR0.53.
Collaboration with LOGOS to accelerate value unlocking. We recently hosted a virtual meeting with Abdul Aziz Abdul Rasheed, COO Investment & Asset Management of SDPR and David Aboud, Head of Malaysia LOGOS. As we understand LOGOS’ operations and business model in the region better, we think SDPR’s collaboration with the former will help to accelerate the value unlocking of the latter’s landbank. About 8m sqf of industrial/logistics space (GLA) is planned for the strategically located 177- acre land in Bandar Bukit Raja and the target tenants are mainly e- commerce companies, freight services provider and 3PL players. Each facility will be designed to achieve green building certification.
Little recurring income over the medium term... While we like the sustainability concept and target market given the fast-rising e-commerce industry, we think to fully develop and fill up 8m sqf of space over a period of four years may be rather ambitious. We are cognisant of the upcoming competition as many local and foreign property players are also entering the same segment, and the completion of their new facilities will also be around the same time, ie 2023-2024. Therefore, we suspect the e- commerce/3PL players may not be willing to pay above-market rental rate psf, and hence, the yield may be lower than expected.
…but divestment of portfolio would be an earnings kicker in the long term. Apart from the progressive land disposal, earnings from the JV development would be minimal over the near term. However, the divestment of the industrial portfolio will likely be an earnings kicker over the longer term, say in 6-7 years. LOGOS indicated that it has delivered 18- 45% pa in IRR on >USD2.3bn divestments of portfolios in Australia and China in the past.
Potentially expanding industrial development to other areas. SDPR has earmarked a total of 2,800 acres of land within its six major township projects for future development of industrial properties. These include Bandar Bukit Raja, Elmina Business Park, Serenia City, Malaysia Vision Valley, Nilai Impian and Bandar Universiti Pagoh. If the partnership with LOGOS turns out to be successful after 3-5 years, we think the JV collaboration will be extended to these identified townships in future.
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