Review

• Sime Darby Property (SDP) reported a core net profit of RM276.3mn in 9M23. Results came in above expectations, accounting 104% and 89% of our and consensus’ full-year forecasts, respectively. The notable outperformance can be attributed primarily to superior property development margins and a higher-than-anticipated finance income. 9M23 revenue was in line at 76% of our full-year forecasts.

• SDP demonstrated robust growth in 9M23, with a 36% YoY revenue surge to RM2.4bn and a remarkable 65% rise in core net profit to RM276.3mn. This exceptional performance was primarily driven by the property development segment, which saw a 55% YoY increase in PBT. The growth stemmed from strong sales and profit contributions from residential and industrial products and increased on-site development activities across key townships.

• However, the investment and asset management segment experienced a 53% decline in PBT. This decline was predominantly attributable to a recognised share of loss totaling RM24.1mn, resulting from higher finance costs associated with its overseas ventures' long-term investment assets.

• The leisure segment revenue grew 6.1% YoY to RM66.7mn in 9M23, driven by higher banqueting and food & beverage contributions, stemming from a rise in the number of events and functions. Despite the higher revenue, the segment reported a loss before tax of RM1.7mn, in contrast to a profit of RM1.8mn in 9M22 (excluding an RM8.9mn gain from the disposal of a leisure property in Vietnam). This decline was primarily due to amplified costs incurred as the segment increased golf maintenance activities in preparation for the Ladies Professional Golf Association tournament held in October 2023.

• In the third quarter of 2023, core net profit experienced a remarkable 120% sequential growth to RM150.5mn. This notable improvement was underpinned by a substantial 52% QoQ increase in revenue, with the property development segment being the primary driver of this strong performance.

• 3Q2 new property sales increased 25% YoY and 24% QoQ to RM1.0bn. This brought the YTD 9M23 new sales to RM2.5bn (-8% YoY). Residential landed properties emerged as the primary contributor, comprising 38% of the total sales in 9M23. Industrial sales, particularly driven by offerings in Bandar Bukit Raja, City of Elmina, and Nilai Impian's XME Business Park, contributed 33% or RM836.2mn. The YTD sales accounted for 93% of management's RM2.7bn sales target for FY23 and 89% of our RM2.8bn sales assumptions. Unbilled sales remained stable at RM3.7bn.

Impact

• We raise FY23 new sales assumptions to RM3.3bn but maintain FY24 and FY25 sales assumptions at RM3.2bn and RM3.5bn respectively. We also adjusted the development margins for certain on-going projects. Correspondingly, our FY23-25 earnings are adjusted upwards by 31-38%.

Conference Call Highlights

• In 9M23, SDP successfully launched a diverse range of products valued at RM3.2bn GDV across its established townships, which accounted for 80% of the RM4.0bn GDV launches for 2023. Residential landed launches achieved an impressive 70% average take-up rate, while industrial products achieved 86% on average.

• With secured bookings totaling approximately RM2.2bn, promising sales prospects loom for the fourth quarter. Additionally, the group plans to introduce new projects worth a combined GDV of RM791.2mn in 4Q. Although management hasn't revised its sales target upward, we anticipate another RM800mn to RM900mn in sales for 4Q. This is projected to elevate the full-year sales for FY23 to approximately RM3.3bn to RM3.4bn, factoring in a conservative booking conversion rate of around 30% and an estimated 30% take up rate for new projects.

• SDP continues to meet its operational targets effectively. In 9M23, the gross margin reached 30%, surpassing the management's target range of 20-25%. As of the end of 3Q23, completed and incoming completed stocks only comprised 12% of total inventories of RM3.8bn in GDV. This aligns with the goal of achieving unsold inventory in property development at or below 10% by year-end. The financial position remains robust, with a net gearing of 27%, comfortably below the management's target of not exceeding 50%.

• We are optimistic about SDP's venture into rooftop solar energy solutions. This move aligns with SDP's strategy to evolve into a real estate company with diversified revenue sources by 2025. It also complements the Government's aim to attain 70% renewable energy capacity by 2050. The collaboration with Tenaga Nasional Berhad marks the initial step, aiming to explore and develop sustainable energy initiatives. Under this partnership, both SDP and TNB will explore integrating rooftop solar solutions into the group's townships and developments. The residential solar pilot project involves leasing rooftop spaces or implementing solar solutions on approximately 1,000 existing and upcoming properties in City of Elmina and other potential townships.

Valuation

• Following the change in earnings, we revised our target price higher to RM0.89/share from RM0.87/share previously, based on an unchanged CY24 P/B of 0.6x. Reiterate Buy.

Source: TA Research - 27 Nov 2023