SIMEPROP is adding another RM5.6b worth of data centre projects to its portfolio, following another build-and-lease agreement signed with Pearl Computing Malaysia Sdn Bhd on top of an existing RM2b contract. With these two projects looking to be completed in FY26, we take this opportunity to introduce a DCF-valuation for these data centres and raise our TP to RM1.78 (from RM1.58). Maintain OUTPERFORM on SIMEPROP with these projects looking to supplement SIMEPROP's long-term earnings sustainability alongside its growing residential and industrial segments.

SIMEPROP announced that it has entered into another agreement with Pearl Computing Malaysia Sdn Bhd (i.e. Google) to build and lease Phase 2 of its data centre projects, on a 77-acre site at Elmina Business Park. The total value of rent payable is estimated to be up to RM5.6b over 20 years (i.e. RM280m/year) with an option to renew for a further five years thereafter. It is expected to be completed in FY26 and would begin contributing to earnings in FY27.

Attributed to its leasing model, we opine that SIMEPROP would not be incurring any utility costs and keep its EBITDA margin close to 90%.

Forecast. Maintained as the leasing of the data centres would only be reflected by FY26 for Phase 1.

Increase TP to RM1.78 (from RM1.58). While we maintained our 50% discount to RNAV for SIMEPROP's property segment which derives our initial RM1.58 TP, we take this opportunity to inject its upcoming data centre ventures to form a SoP valuation.

With regards to Phase 1 (targeted to be completed by early FY26) which has a project value of RM2b over 20 years (i.e. RM100m/year) with a further 5-year extension, attaching a WACC assumption of 5.4%, we would derive a DCF value of RM354m to SIMEPROP. Translating this to Phase 2, we would derive a DCF value of RM993m, cumulatively at RM1.35b or RM0.20/share.

Investment case. We like SIMEPROP for: (i) its diversified portfolio in both landed residential and industrial products which reduces its dependency on residential high-rise products, (ii) strong foothold in matured townships, (iii) proactive initiatives to boost recurring income via strategic investments. Maintain OUTPERFORM.

Risks to our call include: (i) a prolonged downturn in the local property market, (ii) rising mortgage rates further hurting affordability, (iii) rising construction cost, and (iv) risks associated with overseas operations.

Source: Kenanga Research - 3 Dec 2024