• Maintain NEUTRAL, with new MYR0.55 TP from MYR0.53, 11% upside. Sime Darby Property’s 3Q22 earnings were within expectations. The stronger performance in the property development division was partly offset by provision for the potential late handover of projects due to labour shortages. Meanwhile, property sales momentum was encouraging, as 9M sales of MYR2.7bn already exceeded management’s target of MYR2.6bn for the year. We now raise its ESG score to 3.10 (from 3.0) given better earnings quality throughout this year.

• 3Q22 results. The property development segment saw stronger revenue growth QoQ, largely boosted by stronger billings from ongoing projects, as well as non-core land sales in Selangor and Sabah during the quarter. Performance for property investment and leisure & hospitality largely remained stable. However, EBIT for property development was affected due to potential liquidated ascertained damages (LAD) that the company may potentially experience due to labour shortages, hence a total provision of MYR10.6m was incurred during the quarter. SDPR’s unsold completed inventory fell to MYR273.4m from MYR319.9m in the previous quarter. Net gearing improved to 0.28x from 0.30x in 2Q22.

• 9M sales already surpassed target. New property sales achieved MYR800m vs MYR1.01bn in 2Q22. 9M sales of MYR2.7bn already exceeded management’s target of MYR2.6bn for the year. Thus far in 9M22, the company has launched MYR2.1bn worth of projects, comprising 44% residential and 54% industrial product mix, and the average take-up rate for these projects hit 90%. According to plan, SDPR should have another MYR700m worth of projects for launching in 4Q22. Note that the sales of industrial products are getting more significant with the successful launch of projects in Elmina Business Park, Hamilton Nilai City and Bandar Universiti Pagoh. For 9M22, the segment contributed 19% of overall sales compared to 16% last year.

• Upward revision in our ESG score. We raise our ESG scoring for SDPR from 3.0 to 3.1, mainly due to: i) Better earnings quality compared to the past ie lesser exceptional items; and ii) better disclosure on ESG effort (via its press release).

• Forecast. We raise our FY22F earnings slightly by 5% in view of the land sales in 3Q22. Unbilled sales inched up to MYR3.5bn vs MYR3.4bn as at 2Q22.

• Valuations. Our TP is now based on 75% discount to RNAV, with a 2% ESG premium, given our higher ESG score for the company after the review.

Source: RHB Research - 30 Nov 2022