Investment Highlights

• We maintain BUY on Sime Darby Property (SimeProp) with a  lower fair value (FV) of RM0.68/share (from RM0.69/share  previously), which implies an FY24F PE of 12x, at parity to the  average for larger cap property stocks currently. Our FV is  based on a 55% discount to our revised RNAV and a 3%  premium for our 4-star ESG rating (Exhibits 5, 6). 

• The lower FV stems from the reduction to FY23F/FY24F/FY25F  core net profit (CNP) by 7%/4%/3% to account for higher  marketing expenses and finance cost associated with the  Battersea Power Station project.

• SimeProp’s 1QFY23 core net profit (CNP) of RM57mil was  below expectations, making up 17% of our earlier FY23F  earnings and 18% of street’s.

• The variance to our forecast was mainly due to higher-than-expected share of losses from the Battersea Power Station.

• In 1QFY23, the group’s property development PBT improved  65% YoY. This was on the back of YoY revenue growth of 46%  as a result of higher property sales of industrial and  residential products, coupled with higher on-site  development activities of its projects with the easing of labour  shortages. 

• SimeProp’s 1QFY23 new sales fell 23% YoY to RM689mil,  attaining 30% of its FY23F sales target of RM2.3bil (Exhibit 3).  The main contributors are industrial (55%), residential landed  (25%) and residential high-rise (19%) properties. 

• SimeProp’s 1QFY23 launches of RM1bil (vs. RM384mil in  1QFY22) accounted for 33% of its FY23F targeted launches of  RM3bil. This consists of a diverse mix of residential landed  properties (58%), residential high-rise components (29%) and  industrial offerings (13%). 

• As at 7 May 2023, SimeProp achieved a strong average takeup rate of 73% for all its products launched in 1QFY23.  Residential landed products recorded a notable average takeup rate of 79% while industrial offerings achieved an average  take-up rate of 69%.

• For its residential high-rise, SimeProp launched 926 units in  Serasi Residences with a total GDV of RM292mil. Tower 1 (507  units) was almost fully sold with a take-up rate of 99%, whilst  Tower 2, which has 419 units, was recently released in the  market.

• SimeProp’s strong bookings of RM1.6bil (+7% YoY) as at 7 May 2023 and high bookings to sales conversion rate of  70%–80% will further support its FY23F sales prospects. 

• QoQ, the group’s unbilled sales were flattish at RM3.6bil, which represents a cover ratio of 1.3x of FY23F revenue  (Exhibits 3). In view of the acceleration of construction progress given the recovery in foreign labour recruitment, we  anticipate 40%-50% of its unbilled sales will be recognised in FY23.

• The property investment segment’s 1QFY23 PBT slumped 79% YoY despite a revenue growth of 4% YoY. This was  mainly due to recognition of share of loss of RM8mil (vs. share of loss of RM3mil in 1QFY22) from joint ventures and  associates.

• The leisure segment’s turnaround to a 1QFY23 PBT of RM2mil (from 1QFY22 LBT of RM1mil) was due to improvements  in revenue contributions from events/functions, food/beverages, and golfing activities.

• QoQ, the group’s 1QFY23 CNP plunged 53%, mainly attributed to slower property sales (-28% QoQ). Meanwhile, the  property investment segment’s 1QFY23 PBT fell 78% due to the termination of a Singapore-based lease agreement.

• Nevertheless, We Are Positive on the Longer-term Outlook for SimeProp, Premised On:

(i) its sizeable landbank (15,400 acres) located strategically on the west coast of Peninsular Malaysia with a gross  development value (GDV) of more than RM100bil; 

(ii) SimeProp's ability to launch in-demand products at the right price points in strategically located townships, which  has been proven by a strong take-up rate of 90% for its FY22 new launches and an average take-up rate of 88% in  FY19-22; 

(iii) the official launching of Battersea Power Station in 2HFY22, which would potentially drive up residential sales and  commercial leases at The Power Station and Electric Boulevard; and

(iv) its venture into fast-growing industrial land development through the establishment of an industrial development  fund together with LOGOS property to build an integrated logistics park in Bandar Bukit Raja, Selangor. The fund  is projected to generate recurring income (fund management fees and leasing income) starting FY23F, following  the expected completion of the first phase of the integrated logistics park in June 2023. 

• The stock currently trades at a compelling FY24F PE of 9x vs. its 2019 pre-pandemic valuations of 14x and offers a compelling dividend yield of 5%.  

Source: AmInvest Research - 26 May 2023