• Maintain BUY and MYR2.00 TP, 46% upside and c.3% yield. Management’s clarification on the losses incurred by the Battersea Power Station (BPS) project in 2Q24 results should be able to alleviate market concerns. Looking ahead, given the absence of a material negative surprise from the BPS, share price will be driven by stronger 2H24 earnings from management’s confidence to achieve higher property sales (target MYR3.5bn), and ongoing negotiations with more data centre (DC) players to grow the new business over the longer term.

• Management clearing the air on BPS project. During the post-results briefing last Friday, management spent substantial time to address all the questions relating to the BPS project. Sime Darby Property’s CFO Betty Lau Sui Hing indicated that the losses are non-recurring and future losses (if any) would be minimal. Leasing prospects for 50 Electric Boulevard is encouraging. Of the 208k sqf in the office tower, SharkNinja and a global marketing agency have committed to take up about 42k sqf, and management aims to achieve 80% occupancy by end 2025 in view of the strong interest and demand for the remaining floors.

• More DC deals may come. Management’s commitment to grow the investment & asset management segment should boost investor confidence in the company’s serious strategy to build its DC-related real estate business. It was mentioned that some other areas have also been explored to potentially set up DC facilities. We believe news flow on this front should continue to excite the market given the company’s track record in securing a technology giant such as Google.

• Retail portfolio is also gaining strength. Elmina Lakeside Mall had its soft- opening last Thursday. The 98% committed lease upon opening, again, reflects management’s strong execution ability. While KL East Mall has just achieved 96% occupancy rate after 3-4 years since its opening, it is now providing 6.5-7% yield. Hence, given the high occupancy rate for Elmina Lakeside Mall at inception, the mall should be able to hit a similar yield within a shorter period of time.

• Potential collaboration with sister company for more industrial. We do not rule out the possibility that SDPR may potentially tie-up with SD Guthrie (SDG MK, BUY, TP: MYR5.35) given the latter’s aggressive plan to embark on industrial development. SDG has identified 10,000 acres of estate land in West Malaysia suitable for industrial development, and given SDPR’s experience and brand equity in this segment, we think the collaboration between the two sister companies should underpin the long-term growth of SDPR in industrial development.

Source: RHB Research - 26 Aug 2024