Following Sime Darby Property's (SDP) 1Q24 results briefing, we remain optimistic about the group's prospects. Although management did not raise the FY24 sales target, we believe SDP will surpass it due to strong 1Q24 sales, robust bookings, and a substantial lineup of launches for 2Q-4Q. Management is committed to strategic land monetisation and is optimistic about the group’s FY24 outlook. Additionally, we are positive about the proposed build and lease of a hyperscale data centre in Elmina Business Park, which promises 20-year recurring income and enhances SDP’s reputation as a leading industrial property developer in Malaysia. We maintain our Buy rating on SDP with a higher target price of RM1.57/share, based on CY25 P/Bk multiple of 1.0x.

Management Maintains Sales Target of RM3.0bn

Over the past six years, SDP has consistently exceeded its internal sales targets by 13-43%, as illustrated in Figure 1. Despite strong 1Q sales of RM956mn, a 39% YoY increase, management has maintained its sales target of RM3.0bn for FY24, a 10% decrease from the previous year. Nevertheless, we anticipate that SDP will surpass its FY24 sales target for several reasons: 1) 1Q24 sales already account for 32% of the annual target; 2) positive sales prospects for 2Q, supported by RM2.6bn in bookings and 3) planned launches worth RM2.9bn to be rolled out in 2Q-4Q. Notably, SDP achieved an average take-up rate of 80% for products launched in 1Q24, with residential high-rise reaching 80% and industrial properties at 73%. Our FY24 sales assumption is RM3.3bn.

Strategic Landbank Monetisation

As the largest property developer in Malaysia in terms of landbank, SDP owns a geographically diverse landbank in strategic locations on Malaysia's west coast that we believe is suitable for both residential landed and industrial township development. SDP is committed to unlocking value by actively enhancing the value of existing townships and executing strategic land monetisation and acquisitions. It will enhance the role of a master developer by expediting the turnover of approximately 13,000 acres of developable landbank.

Land development and monetisation continue to advance rapidly, with 940 acres of land activated in FY23, of which 540 acres were used in property development, and 400 acres of non-core land disposed of. This surpassed SDP’s previous 5-year average of 700 acres. In 1Q24, SDP activated 170 acres of land, including 70 acres for industrial development purposes. With strong demand for industrial products, 34% of the RM3.9bn planned launches for FY24 will come from industrial products. In 1Q24, industrial properties emerged as the leading sales contributor, accounting for 30% of 1Q24 sales.

Optimistic on FY24 Outlook

Management is optimistic about the property sector outlook, pointing to key growth drivers such as improved foreign labour conditions, stabilisation of interest rates, and active land transactions fuelled by increasing foreign direct investments from manufacturing, data centres, and electronics and electrical (E&E) companies, which intensify competition for land. They also foresee a boost in property demand from ongoing mega projects such as the ECRL, RTS, and Penang LRT. Additionally, favourable policies such as the New Industrial Master Plan (NIMP) and National Energy Transition Roadmap (NETR) are anticipated to draw investments into the data centre and green energy sectors, which in turn is anticipated to benefit SDP's industrial properties portfolio. Overall, management anticipates robust growth in the group’s property development segment this year, driven by diversified launches, especially in industrial and residential products.

Build and Lease Data Centre in Elmina Business Park

Separately, SDP announced that it has inked a build-and-lease agreement with Pearl Computing Malaysia Sdn. Bhd., a subsidiary of Raiden APAC Pte. Ltd., a Singaporean company part of a U.S.-based multinational technology corporation. The deal involves designing, constructing and leasing a hyperscale data centre on 49 acres of land in Elmina Business Park, according to Pearl Computing’s specifications. Effective from 23 May, 2024, the agreement anticipates project completion by the end of 2026, with Pearl Computing leasing the facility for 20 years, with two 5-year renewal options. Meanwhile, the rent, based on the project's gross development cost, is estimated at up to RM2.0bn over the initial term. We view this development positively, as it will expand SDP’s investment and asset management portfolio, aligning with SDP’s SHIFT25 strategy to grow recurring income. Furthermore, the arrival of a prominent multinational technology corporation to the 1,500-acre Elmina Business Park is expected to substantially elevate SDP’s reputation and track record as a leading industrial property developer in Malaysia.

Forecasts

No Change to Our FY24-26 Earnings Forecasts.

Valuation and Recommendation

We like SDP for its significant presence in the landed residential and industrial property segments, clear earnings visibility supported by unbilled sales of RM3.6bn and healthy balance sheet with 24% net gearing as at 1Q24. 

We believe the ongoing rally in property counters share prices has further potential due to strong demand, favourable market conditions and positive investor sentiment. Considering the favourable outlook, we raise our target P/Bk multiple to 1.0x from 0.6x and arrive at a new target price of RM1.57/share (previously RM0.91/share). Reiterate Buy.

Source: TA Research - 24 May 2024