Investment Highlights

• We maintain BUY on Sime Darby Property (SimeProp) with a higher fair value (FV) of RM1.25/share (from RM0.95/share previously), based on a 40% discount to our revised RNAV, which implies FY25F PE of 18x, close to the average of larger cap property stocks currently. We made no changes to our 4-star ESG rating , which accords a 3% premium to our FV.

• SimeProp’s 1QFY24 core net profit (CNP) of RM126mil came in above expectations. It accounted for 31% of our earlier full-year forecast and 30% of street’s.

• The variance to our forecast was mainly due to stronger- than-expected contribution from its property development segment.

• Hence, we raise FY24F/FY25F/FY26F CNP by 8%/5%/5% to account for stronger-than-expected revenue from its property development segment in view of stronger sales and increased on-site development activities in major townships.

• In 1QFY24, the group’s property development revenue grew 45% YoY while PBT rose 77% YoY. The stronger revenue was due to higher on-site development activities of its Malaysian projects, coupled with higher property sales.

• SimeProp’s 1QFY24 new sales of RM956mil (+39% YoY) accounted for 32% of its FY24 sales target of RM3bil . The strong sales performance in 1QFY24 was driven by the group’s diverse offerings during the Chinese New Year Dragon Deals campaign. The main sales contributors in 1QFY24 were industrial (30%), residential landed properties (27%) and residential high-rise (25%).

• SimeProp’s 1QFY24 launches of RM820mil made up 21% of its FY24 targeted launches of RM3.9bil.

• The group’s strong bookings of RM2.4bil (+26% QoQ) as at 28 April 2024 and high bookings-to-sales conversion rate of 70%-80% will further support FY24F sales prospects.

• The group’s unbilled sales were RM3.6bil (flattish QoQ), which represents a fair cover ratio of 0.95x FY24F revenue . In view of the acceleration of construction progress given the recovery in number of foreign workers, we anticipate 40%-50% of its unbilled sales will be recognised in FY24F.

• YoY, the property investment segment’s 1QFY24 PBT surged 3.4x while revenue expanded 11%. This was primarily due to an increase in the occupancy rate to 90% from 85% and rising footfall in KL East Mall.

• The leisure segment recorded a loss before tax of RM2mil in 1QFY24 vs. a PBT of RM2mil in 1QFY23. This loss was primarily attributed to higher depreciation resulting from an asset review exercise that began in 1QFY24 and will be completed in stages over the rest of the financial year.

• QoQ, the group’s 1QFY24 revenue declined 3% while CNP fell 23%. This was mainly attributed to a higher effective tax rate of 30% in 1QFY24 vs. 21% in 4QFY23.

• Overall, we are positive on the outlook for SimeProp, premised on:
  
  (i) its sizeable landbank (14,800 acres) located strategically on the west coast of Peninsular Malaysia with a gross development value (GDV) of RM115bil;
  
  (ii) SimeProp's ability to launch in-demand products at the right price points in strategically located townships, which have a strong take-up rate of 80% for FY23 new launches and average take-up rate of 88% in FY19-22;
  
  (iii) its venture into fast-growing industrial land developments through the establishment of an industrial development fund together with LOGOS property to build an integrated logistics park in Bandar Bukit Raja, Selangor. The fund is projected to generate recurring income from fund management fees and leasing income, starting from FY24F with the expected completion of the first phase of the integrated logistics park this year.

• The stock currently trades at a compelling FY25F P/E of 15x vs. its 2018-2019 pre-pandemic valuations of 17x. It also offers a fair dividend yield of 3%.

Source: AmInvest Research - 23 May 2024