• We recently held a meeting with an investor relations representative from Sime Darby Property (Simeprop). Overall, the outlook for Simeprop appears promising, primarily driven by the sustained strong demand from industrial property development.

• The company has scheduled the release of more residential properties in the 2H2023, with a dedicated focus on high-rise developments.

• Maintain a BUY call with an unchanged TP of RM0.86, pegged at 0.6x P/B to FY24F BVPS of RM1.43. This implies a +0.6 Std. Dev. above its 5-yr historical average forward P/B of 0.5x.

• Key re-rating catalysts on the stock include (i) recurring income growth from larger AUM asset, and (ii) affordable housing project that will expedite its land bank monetization plan.

Demand for Industrial Properties Pick-up Steam

Simeprop is set to ride on strong demand for industrial properties by having new launches at Malaysia Vision Valley 2.0 (MVV 2.0). Simeprop has 6,000 acres land in MVV 2.0 area with c.33% or 2,000 acres are for industrial development. It foresees strong demand given its low land cost of RM60/sqft vs RM100/sqft in industrial areas in KL, particularly from upgraders. We believe this will sustain its sales performance moving forward. To recap, it recorded total sales of RM1.5bn in 1H23 which represents 65% of its FY23 sales target of RM2.3bn. This was mainly driven by industrial segment which made up 40% of the total sales. However, this portion will ease slightly in 2H23 given the planned launch of new high rise residential projects in Ara Damansara and Kuala Lumpur Golf Country Club (KLGCC) with total GDV of c.RM1bn in 2H23.

On Track to Grow Investment Asset Portfolio

In medium term, it remain steadfast to grow its asset under management (AUM) as it seeks to generate 30% of its operating income from recurring income. We believe this is achievable given its plan to double its AUM to RM3bn. This is supported by its large headroom to raise its net gearing which currently stands at only c.20%. Additionally, the company is actively seeking to diversify its asset portfolio by exploring investments in sectors such as private schools. This strategic move aims to generate attractive yields and enhance the company's overall financial performance.

Embrace the Role of a Green Energy Champion

The company also plans to capitalize on government National Energy Transition Roadmap (NETR) policies in order to enhance its recurring income. This will be done through the implementation of rooftop solar projects in Elmina. It aims to achieve a minimum participation of 10% from homeowners to lease their rooftops for solar panel installations. In addition, the company has ambitious plans to establish a 1000-acre solar farm in Kedah and Johor. This venture is designed to provide solar energy to consumers in the Elmina city township through virtual offtake contract. The company's target market includes industrial business owners who are seeking to incorporate ESG elements into their utility usage. Nevertheless, we have not yet taken this into account in our forecast as it is still at nascent stage.

Accelerate Low-cost Housing Development

Given its lack of exposure to affordable housing segment, it intends to venture into the segment using a sister brand. This will be done via a JV with another party that has strong presence in the affordable segment. The JV will introduce affordable property township that will be priced below RM400k. We are positive with this initiative as it will enhance the company's ability to activate the landbank outside the city area which is inline with its effort to monetise its huge land bank.

Prudent Inventories Management

The company unsold inventories are among the lowest among its peers at RM250mn. It believes that this is manageable and brings minimal risk to its balance sheet.

Maintain a BUY call with TP of RM0.86

We maintain a BUY call with a TP of RM0.86, pegged at 0.6x P/B to FY24F BVPS of RM1.43. This implies a +0.6 Std. Dev. above its 5-yr historical average forward P/B of 0.5x. We believe this is justified by its earnings growth potential moving forward from (i) the monetization of its land bank, (ii) recognition from on-site progress property projects, (iii) an increase in recurring income from booming demand for industrial properties and (iv) strong 2023 new launch pipeline of RM4bn (FY22: RM2.6bn).

Source: BIMB Securities Research - 13 Sept 2023