SIMEPROP raised its FY24 sales target to RM3.5b from RM3.0b on better sales momentum. Following it falling short on profit guarantees from Battersea, the group anticipates minimal future impact under International Financial Reporting Standards 17 (IFRS 17) requirements. Additionally, the group plans to expand by leasing more data centres and advancing their SHIFT25 strategy. We maintain our FY24-25F earnings forecasts and TP of RM1.36 while maintaining our discount to RNAV of 55%. We also keep our MARKET PERFORM call.

SIMEPROP hosted a results briefing and following are the key takeaways:

1. The group raised its sales target from RM3.0b to RM3.5b, driven by strong sales momentum from its year-to-date performance. As of August FY24, bookings have reached RM2.2b, and with this positive trend, the outlook remains optimistic for meeting or even surpassing the revised target.

2. On Battersea, rental guarantees have been given to purchasers and the shortfall upon handover had necessitated treatment of losses under IFRS17, whereby impact has been explained to be frontloaded.

3. On the data centre project, the group clarified that while they own the building, they are focused on completing the current project. Google will lease the facility and take full control of its operations, while the group manages the power and basic building infrastructure. We believe this approach will enhance the value of their adjacent land and create further potential benefits within the 1,500 acres in Elmina Business Park.

4. Its SHIFT25 strategy remains intact, focusing on enhancing recurring income through its Engine 1, 2, and 3 initiatives. The plan includes maximizing the potential of their core businesses, pursuing geographical expansion, and exploring new business segments such as affordable homes. We believe these initiatives will be positive, acting as value multipliers for their existing operations and driving growth.

Forecast. Maintained.

Valuations. We maintain our TP of RM1.36 while maintaining our discount to RNAV of 55% (which aligns with industry average). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Investment case. We like SIMEPROP for: (i) its diversified portfolio in both landed residential and industrial products that reduce its dependency on residential high-rise products, (ii) strong foothold in matured townships, (iii) proactive initiatives to boost recurring income via strategic investments. That said, the market may have already priced in stronger sentiment for property counters. Maintain MARKET PERFORM.

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 - 26 Aug 2024