• Maintain BUY, with new TP of MYR0.93 from MYR0.67, 35% upside and c.3% yield. 2Q23 earnings missed expectations, but we note that 2H is typically stronger. With 1H property sales at MYR1.5bn, management raised its sales target to MYR2.7bn (from MYR2.3bn). This is still conservative, in our opinion, considering current bookings worth MYR1.9bn to be (partially) converted to contractual sales in 2H. We raise our TP to reflect better market sentiment ahead, given the lifting of the political overhang post state elections.

• 2Q23 results. Revenue for the property development segment was resilient QoQ, mainly contributed by billings from Bandar Bukit Raja, Nilai Impian, Elmina Business Park and Serenia City. The property investment and leisure & hospitality segments saw weaker earnings, due to higher utility costs as well as maintenance cost for the golf course. Meanwhile, 1H23 share of JV losses was higher YoY due to steep interest rate hikes in the UK, and as such, higher interest expense from bank borrowings for the Battersea Power Station project. Unsold completed inventory fell to MYR237.7m, the lowest level since the demerger, from MYR274m in 1Q23. Net gearing remained relatively unchanged at 0.21x from 0.20x 1Q23. Similar to 2Q22, a 1 sen interim dividend was declared.

• Sales momentum still going strong. 2Q23 new property sales hit MYR811.5m vs MYR688.5m in 1Q23. Of the total MYR1.5bn sales in 1H, the industrial segment contributed 40% (MYR597m). The balance of the sales was from residential landed projects 37% (Elmina and Bandar Bukit Raja) and residential high-rise 21%. The recent launch of Teja SJCC was a success, as this project saw a take-up of 94%, while Serasi Residences Putra Heights (a transit oriented development) is 79% sold. In addition, industry products achieved an average take-up of 88%, mainly from The Prestige Collection Signature Factories in Elmina Business Park and industrial properties in Bandar Universiti Pagoh as well as XME Business Park Phase 2 C in Nilai Impian.

• New sales target of MYR2.7bn. Given the promising outlook, management has raised its FY23 sales target to MYR2.7bn (from MYR2.3bn). At the same time, given the strong demand, the launch target is also higher at MYR4bn from MYR3bn.

• Forecasts. We maintain our FY23-25 earnings forecasts, as 2H is typically stronger. Unbilled sales increased to MYR3.8bn, vs MYR3.6bn as at 1Q23.

• Valuation. Our TP is now based on a 60% discount to RNAV (from 70%), with a 2% ESG premium, given our ESG score of 3.1 for Sime Darby Property.

Source: RHB Securities Research - 29 Aug 2023