• Maintain BUY and MYR2 TP, 45% upside and c.3% yield. 2Q24 net profit beat expectations. Despite the sale of non-core land, Sime Darby Property’s operating performance was fairly strong, mainly driven by high property sales and billings. This has helped to offset the Malaysian Financial Reporting Standard 17 (MFRS 17) impact related to a 5-year guarantee due to a disposal of a London office tower. The recent sell-down represents a good buying opportunity. Apart from its strong property sales, further news flows on data centre-related real estate deals are expected to buoy sentiment on the stock.

• 2Q24 results. High property sales and billings, as well as the disposal of non- core land in Elmina and Lembah Acob in Selangor, were the key revenue drivers during the quarter. Despite the impact of land sales that may worth c.MYR100m – based on our estimate – 1H24 EBIT margin expanded to 25% (1H23: 17%), well reflecting the strong performance at core operating level. Bandar Bukit Raja, Serenia City, Elmina, KLGCC Resort, and Ara Damansara were the key contributors to sales and billings. Meanwhile, unsold completed inventory inched up slightly to MYR330m (1Q24: MYR313m). Net gearing stayed healthy at 0.22x vs 0.24x in the previous quarter. A 1.5 sen first interim dividend was declared vs 1 sen in 1H23.

• MFRS 17 impact. SDPR incurred a MYR87.9m share of JV losses in 2Q24. This was mainly caused by the negative accounting impact from MFRS 17 “Insurance Contract” related to a 5-year rental guarantee (with potential price adjustments) on the disposal of an office tower in London by the Battersea Power Station or BPS consortium, as well as higher finance costs incurred. While management is likely to elaborate more during tomorrow’s analysts briefing, SP Setia’s (SPSB MK, BUY, TP: MYR1.72) management team indicated that the accounting impact was already based on fairly conservative assumptions. Hence, we believe future losses (if any) related to the rental yield guarantee could be minimal.

• Raised FY24 sales target to MYR3.5bn from MYR3bn. 2Q24 property sales achieved MYR1.14bn (1Q24: MYR956m). The industrial segment contributed 35% to total sales of MYR2.1bn in 1H24, followed by high-rise and landed residentials at 25% and 21%. As at 11 Aug, SDPR has total bookings worth MYR2.2bn to be converted into contractual sales.

• Forecasts. In view of the strong 1H24 results, we raise our FY24F-26F earnings by 10%, 14%, and 10%. Unbilled sales stood at MYR3.7bn vs MYR3.6bn during the previous quarter.

• Maintain TP. Our TP (with 4% ESG premium) is based on a 25% discount to RNAV.

Source: RHB Research - 23 Aug 2024