Sime Darby Property - Shifting to a Higher Gear

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Price Call: 
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-1.48 (57.81%)

SIMEPROP’s 1QFY24 results beat expectations. Its 1QFY24 core net profit more than doubled, driven by strong sales of residential and industrial products. We raise our FY24-25F earnings forecasts by 5% and 2%, respectively, lift our TP by 29% to RM1.08 (from RM0.84) and upgrade our call to MARKET PERFORM from UNDERPERFORM.

SIMEPROP’s 1QFY24 core net profit of RM123.6m beat expectations, coming in at 31% and 29% of our full-year forecast and the full-year consensus estimates, respectively. The variance against our forecast came largely from stronger-than-anticipated sales of both residential and industrial products.

YoY, its 1QFY24 revenue rose 43%, primarily driven by robust sales in both industrial and residential sectors, coupled with enhanced on-site progress development. Its core net profit more than doubled on improved operating scale, particularly, in administrative and marketing.

QoQ, its 1QFY24 revenue declined 3% from a high base in the preceding quarter (due to a lumpy land sale). However, its core net profit grew 2% on a better product mix which more than offset sustained losses from its joint ventures.

Outlook. SIMEPROP’s unbilled sales stand at RM3.6b and that should support its earnings visibility for the next three years. On signs of demand picking up, it is putting into the market luxury condominium project Ophera at KLGCC Resort and Elmina Lakeside Mall. Meanwhile, the outlook for its bread-and-butter residential and industrial products remains positive.

Forecast. We raise our FY24-25F earnings forecasts by 5% and 2%, respectively.

Valuations. Correspondingly, we lift our TP by 29% to RM1.08 (from RM0.84) as we lower our discount to RNAV to 55% (from 60%) to reflect the improved realisability of its GDV and recalibrate our NPV estimates. There is no adjustment to our TP based on ESG given a 3- star rating as appraised by us (see Page 5).

Investment case. We like SIMEPROP for: (i) its diversified portfolio in both landed residential and industrial products which reduce its dependency on residential high-rise products, (ii) strong foothold in matured townships, (iii) proactive initiatives to boost recurring income via strategic investments. That said, its valuations may have been fairly priced in reflection of stronger sentiment for property counters. Upgrade to MARKET PERFORM from UNDERPERFORM.

Risks to our call include: (i) elevated mortgage rates eroding affordability, (ii) consumers delaying purchases of big-ticket items including properties on weak spending confidence amidst sustained high inflation, (iii) construction cost inflation, and (iv) risks associated with overseas operations including forex.

Source: Kenanga Research - 23 May 2024

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