• Maintain NEUTRAL and MYR0.55 TP, 11% upside with c.4% FY22F yield. We believe Sime Darby Property’s 4Q22 earnings will be on track to meet estimates, backed by its strong property sales and healthy pipeline of launches. Interruptions at construction sites due to labour shortages will be the key downside risk. Meanwhile, having already achieved its sales target, the company’s 4Q22 property sales are likely to decrease QoQ, while it focuses on ensuring the timely completion of recently launched projects.

• Expect slower sales in 4Q22. At SDPR’s post-results virtual analyst briefing yesterday, Group Managing Director Dato’ Azmir Merican indicated that property sales in 4Q22 will likely be softer, as the sales & marketing team is not pushing sales that aggressively. This is mainly because of the industry-wide labour shortage and, as such, the potential liquidated ascertained damages (LAD) to be incurred if its project completion is behind schedule. Management also thinks that tender prices may improve next year, as the labour shortage eases and building material prices soften over time. In addition, the company’s 9M sales of MYR2.7bn already exceeded management’s initial target of MYR2.6bn for the year – and there are still MYR2.1bn worth of bookings in the pipeline.

• Property sales still strong despite MYR100m land sale. Management clarified that its property sales of MYR808m in 3Q22 is inclusive of the MYR100m land sale. About 200 acres of land in Kapar, Denai Alam and Sabah were sold during the quarter. This is in line with management’s strategy on landbank management, whereby non-core or land parcels with less development potential will be sold, while new land such as the 760- acre parcel in Labu and 948-acre site in Kapar will underpin the company’s property development activities over the long term.

• RM500m worth of projects for 4Q22. Due to the reasons mentioned above, management has cut down the launches scheduled for 4Q22. Of the MYR700m worth of projects planned earlier, only MYR500m will be launched in the final quarter. This comprises MYR325m of high-rise residential projects (Melawati and Putra Heights), MYR133m in landed residential units and MYR47m worth of industrial products. As at 20 Nov, MYR421m has already been put into the market.

• Expect industrial segment to gain more significance. Management highlighted that the launches of industrial products during 3Q22 were mostly 90-100% sold, including the twin factories and detached factories in Elmina Business Park, as well as industrial lots at Hamilton and Bandar Universiti Pagoh Industrial Park.

• Valuations. Our TP is based on a 75% discount to RNAV, with a 2% ESG premium, given our in-house ESG score of 3.1.

Source: RHB Research - 1 Dec 2022