Overview

Sime Darby Property (SDP) is principally involved in three business divisions, namely 1) property development, 2) investment and asset management and 3) leisure and hospitality. SDP is Malaysia’s most prominent property developer in terms of land bank, with approximately 13k acres landbank with a total estimated GDV of RM115bn.

Investment Themes

• Strategic Transformation under SHIFT25. SDP remains committed to becoming a sustainable real estate development company by 2025, guided by its SHIFT25 strategy. We are optimistic about SDP's efforts to diversify and expand its revenue streams beyond property development. A significant milestone was reached with the final close of the Industrial Development Fund 1 (IDF-1) at RM1bn in April 2024. Additionally, the upcoming build-and-lease data centre at Elmina Business Park is expected to enhance SDP's investment and asset management portfolio, supporting the SHIFT25 strategy to increase recurring income.

• Leading Player in Malaysia's Industrial Real Estate Sector. SDP is a key player in Malaysia's industrial real estate market, with a substantial 3,000-acre industrial landbank across six major townships. Our positive outlook is driven by the government's New Industrial Master Plan 2030 (NIMP), which aims to boost manufacturing value and aligns with the increasing demand for industrial space. SDP's industrial property sales have shown significant growth, rising from 14% in FY20 to 30% in 1QFY24. The arrival of a prominent multinational technology corporation at the 1,500-acre Elmina Business Park is set to further enhance SDP’s reputation as a leading industrial property developer in Malaysia.

• Strong Execution Capability. SDP’s strong execution capability has enabled the group to meet its KPIs consistently. In 1Q24, the gross margin reached 31%, surpassing the management's target range of 20- 25%. As of the end of 1Q24, completed stocks only comprised 12% of total inventories of RM3.8bn in GDV. This aligns with the goal of achieving unsold inventory in property development at or below 10% by year-end. The financial position remains robust, with a net gearing of 24%, comfortably below the management's target of not exceeding 50%. Importantly, SDP is on track to surpass its FY24 sales target of RM3.0bn, with 1Q24 sales accounting for 32% of the target.

Risk

• The risks to our earnings forecasts are: 1) delay in roll-out of new launches; 2) project execution risks; and 3) cost escalation of construction materials and labour.

Recommendation

• Our TP for SDP is RM1.57 (ESG: ★★★★★), based on 1.0x CY25 BPS. Maintain BUY.

Source: TA Research - 2 Jul 2024