Sime Darby Property’s (SDPR) 2019 result was a positive surprise. It reported net profit of RM599m in 2019, compared to net loss of RM238m in 2018. The strong rebound was driven by higher property development earnings, land and investment property sale gains. Net profit increased 3.1-fold qoq to RM103m in 4Q19 with lower provisions and impairments. We fine-tune our EPS forecasts after inputting 2019 figures. Earnings volatility remains our key concern for SDPR. Maintain our HOLD call with 12-month TP of RM0.83, based on 60% discount to RNAV.

Positive Surprise

Net profit of RM599m in 2019 was 26% higher than market consensus forecast of RM477m and 6% above our estimate of RM565m. Sales of RM3.1bn in 2019 exceeded our forecast of RM2.5bn and management’s target of RM2.3bn. Core net profit of RM500m in 2019 was a sharp reversal from a RM34m core net loss in 2018. This strong operating performance was driven by higher progress billings on ongoing projects, sale of inventories and new property launch sales. SDPR generated one-off gains of RM384m from non-strategic land and investment property sales in 2019. But this was offset by impairment and provisions totalling RM167m.

Higher Revenue

Revenue jumped 30% yoy to RM3.18bn in 2019, driven by higher property sales, progress billings on ongoing projects and non-core land sales of RM181m. EBIT increased 64% yoy to RM499m with land sale gains boosting EBIT margin to 17.4% in 2019 from 14.4% in 12M18.

High Unbilled Sales to Sustain

SDPR launched new properties 2,917 units in 2019 with gross development value (GDV) of RM2.3bn in 2019. Unbilled sales of RM1.55bn and total unsold and launched units with GDV of RM2.26bn will support sales and earnings in 2020-2021E.

Maintain HOLD Call

We reiterate our HOLD call on SDPR with TP of RM0.83, based on 60% discount to RNAV. We are concerned with the volatility in earnings and EBIT margins. Key upside risk are sustained strong property sales and further land sale gains; downside risk is prolonger property market downturn.

Source: Affin Hwang Research - 27 Feb 2020