• Sime Darby Property Bhd (Simeprop) achieved record-high performance in 1HFY24 since the 2017 demerger. This was primarily driven by heightened sales activity and on-site development progress from major townships.

• Simeprop revised its FY24F sales target upward to a new high of RM3.5bn, driven by 1) healthy bookings totaling RM2.2bn as of August 2024, which are expected to convert into sales in 2HFY24, and 2) strong unbilled sales of RM3.7bn (+1.5% vs. FY23) or 1.1x cover ratio on the back of the growing contribution from both residential high-rise and industrial products.

• Maintain a BUY call on Simeprop with a higher target price (TP) of RM1.73 (from RM1.21). This is pegged at 1.1x price-to-book (P/B) ratio (based on KL Property Index peak cycle P/B) to the FY25F book value per share (BVPS) of RM1.57. We believe this is fair given its 1) strong sales performance from a diversified product mix, 2) improved site progress in property development, and 3) persistent new development launches with higher sales targets.

1HFY24 Core Net Profit Above Expectations

Sime Darby Property Bhd (Simeprop) achieved a record-high core net profit in 1HFY24, reaching RM291mn (+131% YoY), alongside a 59% growth in revenue. The strong 1HFY24 performance was driven by higher sales volume from a diversified product mix, improved progress at the Property Development sites, and recovery in the leisure segment, which offset increased losses from joint ventures (JV) in investment and asset management (IAM) segment. Overall, Simeprop’s 1HFY24 core net profit exceeded both our and Bloomberg consensus’ estimates of 66% and 64% of full-year forecasts.

On QoQ basis, Simeprop’s revenue and core net profit increased by +23% and +33%, respectively. This growth was due to higher sales of industrial and high-rise residential products, alongside increased onsite development activities in the City of Elmina, KLGCC Resort, Bandar Bukit Raja, Serenia City, and Elmina Business Park townships. In 2QFY24, the company declared a higher second single-tier DPS of 1.5sen (2QFY23: 1.0sen), translating to a 63% payout. This brings the total 1HFY24 DPS of 3.0sen.

Battersea Experiences Losses Due to IFRS 17 Impact

In April, Battersea Power Station (BPS) completed a sales agreement for 50 Electric Boulevard Phase 3B office building, featuring a rental guarantee for the first five years, spanning from April 2024 to March 2029. Simeprop anticipates that the occupancy rate for Phase 3B of BPS will improve from the current 20% to between 50% by the end of 2024 and 80% the following year. Due to an accounting rule under the International Financial Reporting Standards (IFRS), the share of joint-venture (JV) losses increased to RM87.9mn for the 2QFY24, up from RM21.9mn in 2QFY23. These losses were derived from projections of future cash flows for the full contract term, which are subject to ongoing review. BPS has the option to adjust the purchase price after the fifth year. The inclusion of a rental guarantee and potential price adjustment brings the contract under IFRS 17. According to this standard, the full financial impact had to be recognized at the beginning of the contract period in the 2QFY24. Future adjustments will be significant only if there are major changes in occupancy rates or discount rates due to macroeconomic shifts.

Simeprop Sets New High FY24F Sales Target Upward of RM3.5bn

Simeprop reported a 40% YoY increase in sales for the 1HFY24, rising from RM1.5bn (1HFY23) to RM2.1bn, with 69% of sales coming from new launch projects amounting to RM1.5bn. This already accounts for 70% of Simeprop’s initial full-year 2024 sales target of RM3bn. Following the strong sales performance in 1HFY24, Simeprop revised its FY24F sales target upward to a new high of RM3.5bn. The positive sales momentum will be supported by healthy bookings totaling RM2.2bn as of August 2024, which are expected to convert into sales in 2HFY24. The company also maintained a healthy balance sheet with a net gearing at 22%. As of 1HFY24, Simeprop’s unbilled sales remained steady at RM3.7bn (+1.5% vs FY23) or 1.1x cover ratio, driven by growing contributions from both residential high-rise and industrial products.

2HFY24 Launch Plan of RM1.6bn

In 2HFY24, Simeprop will commence a substantial property development initiative valued at RM1.6bn, introducing 1,855 units across various segments. The majority of the development, comprising 56% of the gross development value (GDV), will focus on residential high-rise projects with a GDV of RM884.1mn. These projects are strategically located in the City of Elmina, Bandar Bukit Raja, Serenia City, KL East, Putra Heights, and Bandar Ainsdale, catering to urban living needs. The industrial segment, contributing 25% of the GDV at RM384mn, will feature major developments in Elmina Business Park, Bandar Bukit Raja, and Nilai Impian, designed to meet growing industrial demands. Residential landed properties will account for 13% of the GDV, amounting to RM197mn, providing traditional home settings in areas like the City of Elmina and Bandar Bukit Raja. Additionally, commercial developments with a GDV of RM87mn will enhance community infrastructure by offering essential services and retail spaces.

Earnings Projections Revised Upward

We have revised our revenue forecast by upgrading property sales estimates for FY24F/25F/26F by 9%/5%/6%. This adjustment is justified by 1) strong sales performance from a diversified product mix, 2) improved site progress in property development, and 3) ongoing new development launches with higher sales targets. Consequently, these reflect an increase in our net profit forecast for FY24F/25F/26F by 21%/26%/19%.

Maintain BUY with a Higher TP of RM1.73 (from RM1.21)

We are maintaining our BUY recommendation on Simeprop with a higher target price (TP) of RM1.73 (from RM1.21). This is pegged at 1.1x price-to-book (P/B) ratio (based on KL Property Index peak cycle) to the FY25F book value per share (BVPS) of RM1.57. We believe this is fair given Simeprop’s robust outlook in the property segment moving forward.

Source: BIMB Securities Research - 27 Aug 2024