Review

• Excluding impairment, inventory write-offs, gain on JV dilution and forex impacts, Sime Darby Property (SDP) reported a core net profit of RM284.3mn in 1H24. This exceeded expectations, representing 57% of our full-year forecast and 63% of consensus estimates. We attribute the  outperformance to higher-than-expected property sales and progress billings, coupled with non-core land monetisation achieved at attractive margins.
• A first interim single-tier dividend of 1.5 sen/share was declared, up from  1.0 Sen/share in 1H23.
• SDP achieved a record 1H revenue of RM2.2bn (+59% YoY) since its 2017 demerger. Core net profit more than doubled to RM284.3mn from RM125.8mn in 1H23, driven by higher sales volume, successful project execution, a 7.7%-pts improvement in EBIT margin to 24.3%, and non-core land monetisation. These gains were partially offset by higher JV losses of RM110mn Compared to RM46.7mn a year ago.
• The property development segment’s PBT for 1H24 surged by 133% to RM476mn. This impressive growth was driven by robust industrial and residential property sales, significant on-site construction progress and land monetisation in Selangor.
• The investment and asset management segment revenue grew 11% YoY to RM58.1mn in 1H24, driven by higher occupancy rates at KL East Mall (from 86% to 96%) and increased rental rates. Nevertheless, the segment reported a RM58.4mn Loss. This was primarily due to a higher share of losses from Battersea Power Station (BPS), impacted by the MFRS 17 “Insurance Contract” accounting treatment related to a 5-year rental guarantee provided to the purchaser of one office tower in BPS, and higher finance costs.
• The leisure segment experienced 12% YoY revenue growth, supported by higher contributions from memberships, golfing activities, banqueting and food and beverage sales. Despite this, the segment reported a marginal Loss of RM0.2mn in 1H24 due to higher depreciation from an ongoing asset review exercise.
• Sequentially, 2Q24 revenue and core net profit rose 23% and 26% QoQ to RM1.2bn and RM158.5mn, respectively. The improvement was driven by strong property development results and a turnaround in the leisure segment. However, the investment and asset management segment’s loss widened due to Increased joint venture losses.
• 1H24 new property sales surged 40% YoY to RM2.1bn, marking the highest first-half sales since the 2017 demerger. Notably, industrial properties emerged as the leading sales contributor, accounting for 35% of 1H24 sales. Unbilled sales rose to RM3.7bn from RM3.6bn a quarter ago.

Impact

• No change to FY24-26 earnings forecasts pending more updates from an analyst briefing to be held later today.

Outlook

• In 1H24, SDP launched products worth RM2.3bn in GDV, achieving 59% of the full-year target of RM3.9bn. Strong demand was seen for residential properties, with The Ophera at KLGCC resort and Elmina Ridge 1 reaching 81% and 95% take-up rates, respectively. As of 11 Aug 2024, the average Take Rate for All Products Was 77%.
• With property sales reaching RM2.1bn in 1H24 and bookings secured totalling RM2.2bn as of 11 Aug 2024, management has increased its FY24 sales target by 17%, From RM3.0bn to RM3.5bn.
• Looking ahead, management sees strong demand and increasing sales volume as the main drivers of sustained performance in 2H24. The group is on track to become one of Malaysia’s leading real estate companies by enhancing its recurring income streams and diversifying its income base.

Valuation

• We maintain our Buy recommendation on SDP with an unchanged TP of RM1.98/share. Our valuation is based on a P/Bk multiple of 1.2x against its CY25 BPS and a 5% ESG premium incorporated into our TP.

Source: TA Research - 23 Aug 2024