Sime Darby Property Bhd - Third Consecutive Year of Outperformance

Date: 
2024-02-26
Firm: 
TA
Stock: 
Price Target: 
0.91
Price Call: 
BUY
Last Price: 
2.78
Upside/Downside: 
-1.87 (67.27%)

Review

  • Excluding impairment, fair value adjustment and write off & write down of inventories and forex impacts, Sime Darby Property (SDP) reported a core net profit of RM439.7mn in FY23. The results beat expectations, accounting for 120% and 124% of our and consensus’ full-year forecasts, respectively. This marks SDP’s third consecutive year of outperformance, primarily due to higher-than-expected property development margins. Note that FY23 revenue was in line at 104% of our full-year forecast.
  • The board declared a second single-tier dividend of 1.5sen/share for the quarter, bringing FY23 total dividends to 2.5sen/share (FY22: 2.0sen/share). This came higher than our dividend projections of 2.0sen/share.
  • SDP showcased strong growth in FY23, with a 25% YoY surge in revenue to RM3.4bn and a remarkable 34% rise in core net profit to RM439.7mn. This stellar performance was primarily driven by the property development segment, which saw a 44% YoY increase in PBT. The growth stemmed from strong sales and profit contribution from residential and industrial products and increased on-site development activities across key townships.
  • Nevertheless, the investment and asset management segment encountered a 54% decrease in PBT, primarily driven by fair value losses on investment properties and increased finance costs incurred by a joint venture. Furthermore, the segments’ performance was also impacted by higher utility expenses stemming from an imbalance cost pass-through surcharge.
  • The leisure segment witnessed 11% YoY revenue growth, driven by higher banqueting and food & beverage sales. Despite the higher revenue, the segment reported a loss before tax of RM0.8mn, in contrast to a PBT of RM2.4mn in FY22 (excluding a RM8.9mn gain from the disposal of a leisure property in Vietnam). The segment's intensified golf maintenance activities in preparation for the Ladies Professional Golf Association tournament held in October 2023 primarily caused this decline due to escalated costs incurred.
  • 4Q23 core net profit increased 8.5% QoQ to RM163.3mn, driven by lower finance costs and tax expenses.
  • In 4Q23, new property sales fell 11% YoY and 19% QoQ to RM817.9mn. This brought full year FY23 new sales to RM3.3bn (-9% YoY). Residential landed properties were the primary contributor, comprising 36% of the total sales in FY23. Industrial sales, particularly driven by offerings in Bandar Bukit Raja, City of Elmina, and Nilai Impian's XME Business Park, contributed 31% or RM1.0bn. Although FY23 sales exceeded management's RM2.7bn sales target for FY23, it aligned with our RM3.3bn sales assumptions. Unbilled sales remained stable at RM3.6bn.

Mpact

  • After adjusting for the actual results in FY23 and the development margins for certain ongoing projects, our earnings forecasts for FY24 and FY25 are revised up by 5% and 2%, respectively. We maintain our FY24 and FY25 sales assumptions at RM3.25bn and RM3.5bn, respectively. Although our FY24 sales forecasts is 8% higher than management’s target, we feel it is realistic given that it implies a conservative 55% take up rate/conversion rate against the combined value of new launches and bookings in hand totaling RM5.8bn. Note that the average take-up rate for SDP’s new launches is typically above 70%. We introduce FY26 net profit of RM538mn (+3.2% YoY). Conference Call Highlights
  • In FY23, SDP successfully launched a diverse range of products valued at RM4.0bn GDV across its established townships. Residential landed launches achieved an impressive 77% average take-up rate, while industrial products achieved 92% on average.
  • SDP consistently meets operational targets, surpassing its internal sales target for six consecutive years. In FY23, the impressive gross margin of 29% exceeded the management's target range of 20-25%. The financial position remains robust, with a net gearing of 23%, comfortably below the management's target of not exceeding 50%. As of the end of 4Q23, completed and incoming completed stocks constituted only 10.5% (compared to FY23's 13.3%) of the total inventories valued at RM3.7bn in GDV. This also broadly aligns with the strategic objective of maintaining unsold inventory in property development at or below 10%.
  • For FY24, the management has set a conservative sales target of RM3.0bn, reflecting a 10% decrease from the prior year. However, the planned launch of RM3.9bn in new projects is only slightly lower than the value launched in FY23. The management remains optimistic, attributing resilience to demand for properties in strategic locations and at attractive price points. As of February 4th, the group has secured bookings totaling RM1.9bn.
  • In the briefing, management disclosed that the group's first Industrial Development Fund (IDF) has secured the capital commitment for the remaining balance of RM300mn. They anticipate completing the second financial close by March/April this year, bringing the total capital commitment raised for IDF to RM1.0bn. The construction of the initial assets in E-Mero Logistics Park at Bandar Bukit Raja is currently in full swing and will be completed by 1Q24 and 4Q24, respectively.
  • The 2024 financial performance outlook for Battersea Power Station is expected to improve, driven by reduced holding costs as more units are leased out and improved rentals. The anticipation of stabilised or potentially reduced interest rates is likely to stimulate demand in the overall UK residential market. Residential Phase 2 and Phase 3A have achieved a 97% take-up rate, with remaining inventories predominantly comprising larger units. The recently completed residential Phase 3B has achieved a 54% sales rate. Commercial spaces in Phase 2 and Phase 3A are 90% and 85% leased, respectively. Management is currently conducting a detailed assessment to ensure the successful delivery of future phases (Phase 3C to 7).

Valuation

  • After factoring in the revised earnings and rolling forward our base year valuation to CY25, we arrive at a new target price of RM0.91 (previously RM0.89), based on a target P/Bk of 0.6x. Reiterate Buy.

Source: TA Research - 26 Feb 2024

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