Review

• Excluding impairment, write off & write down of inventories and forex impacts, Sime Darby Property (SDP) reported a core net profit of RM125.8mn in 1Q24. The results met our expectations but exceeded the consensus, meeting 25% of our full-year estimates and 30% of the consensus.

• SDP started FY24 strongly, achieving a record high 1Q revenue of RM978.7mn (+43% YoY) since the 2017 demerger. 1Q24 core net profit more than doubled to RM125.8mn from RM57.5mn a year earlier. This growth was driven by higher sales volume, successful project execution, an improved EBIT margin (+3.5%-pts to 20.3%), and reduced losses from joint ventures.

• The property development segment 1Q24 PBT surged 77% to RM170.3mn, driven by a diversified product mix, including strong sales of industrial products from recent launches and robust residential sales in existing townships. Additionally, land monetisation in Kedah contributed to the impressive results.

• The investment and asset management segment PBT grew substantially to RM12.3mn in 1Q24, from RM3.6mn a year ago, driven by improved occupancy rates at KL East Mall (rising from 85% to 90%) and higher visitor footfall during the festive period.

• The leisure segment experienced 8% YoY revenue growth, driven by increased contributions from memberships and golfing activities. Despite this, the segment reported a loss before tax of RM1.8mn, compared to a PBT of RM1.9mn in 1Q23. This loss was due to higher depreciation from an ongoing asset review exercise initiated this quarter and will be completed in stages over the remaining financial year.

• Sequentially, 1Q24 core net profit decreased 23% QoQ due to lower revenue, losses from JVs (compared to a profit in 4Q23), and higher finance costs.

• SDP’s sales in 1Q24 increased by 39% YoY and 17% QoQ, amounting to RM956mn. Notably, industrial properties emerged as the leading sales contributor, accounting for 30% of 1Q24 sales. These sales figures constitute 32% of management’s sales target for FY24. Unbilled sales remained stable at RM3.6bn.

Impact

• No change to FY24-26 earnings forecasts.

Outlook

• In 1Q24, SDP launched products worth RM820.2mn in GDV, including industrial lots and 2-storey detached factories valued at RM588.7mn in Bandar Bukit Raja 3 Industrial Park, and double-storey shop offices valued at RM150.2mn in The Corak, Serenia City. The shop offices achieved an impressive 86% take-up rate, while industrial products achieved an average of 61%.

• With property sales reaching RM956mn in 1Q24 and bookings secured totalling RM2.4bn as of 28 April 2024, we anticipate that management's sales target of RM3.0bn is highly achievable.

Valuation

• We place our target price and recommendation under review pending more updates from an analyst briefing to be held later today.

Source: TA Research - 23 May 2024