• Maintain BUY and MYR0.93 TP, 47% upside and 4% FY24F yield. Sime Darby Property’s 3Q23 earnings beat expectations, as growth was mainly driven by the accelerated billings from the property development segment. The company continued to report strong property sales, with 9M reaching MYR2.5bn – it will very likely surpass the MYR2.7bn target by year end. Current bookings amounted to MYR2.2bn, and this will help to underpin property sales even in 1H24.

• 3Q23 results. While revenue for the other divisions stayed relatively resilient QoQ, revenue for property development grew significantly, largely driven by strong sales in residential landed and industrial products, as well as higher construction activities on-site. EBIT margin was higher at 23.6% from 17.5% in 2Q23, partly boosted by the MYR86m land disposals (in Sua Betong in Kedah and Victoria Estate in Negeri Sembilan), which resulted in a gross gain of about MYR70m. Meanwhile, 9M share of losses from JVs and associates were higher YoY mainly attributed to higher finance cost in relation to long-term investment assets from the Battersea Power Station project. Unsold completed inventory inched up slightly to MYR283.3m from MYR237.7m in the previous quarter. Net gearing increased to 0.27x from 0.21x in 2Q23.

• Strong demand from residential landed and industrial products. 3Q23 new property sales hit MYR1.02bn vs MYR811.5m in 2Q23. Of the 9M total sales of MYR2.52bn, residential landed products contributed 38% (MYR966m), while the industrial segment made up 33% (MYR836m). Residential high-rise was 22% of the total. Residential and industrial projects in Elmina, Bandar Bukit Raja and Serenia City were the main sales drivers, while Serasi Residences in Putra Heights, Teja in SJCC and Park One in Melawati were the key high-rise projects.

• Set to exceed MYR2.7bn sales target. Although management has revised up its sales target from MYR2.5bn to MYR2.7bn in 2Q23, sales momentum remained so strong that SDPR looks set to surpass its new target by end 2023. The company has already launched MYR3.2bn worth of products in 9M23, and it will roll out MYR791m new projects in 4Q. The key ones are SJ7 and KLGCC Resort, and some commercial component in Elmina.

• Forecasts. We raise our FY23F-25F earnings by 25-27%, in view of the strong sales momentum, while construction activities are expected to normalise at the current level. Unbilled sales stayed relatively unchanged at MYR3.7bn vs MYR3.8bn as at 2Q23.

• Valuations. Our TP is based on an unchanged 60% discount to RNAV, with a 4% ESG premium, given our ESG score of 3.2 for the company.

Source: RHB Securities Research - 27 Nov 2023