DEVELOPMENT

• Yesterday, SDG announced it had signed MOU with Eco World and Negeri Sembilan state government's investment "NS Corp" arm to jointly develop a 1,166-acre industrial park in Bukit Pelandok, Negeri Sembilan.

OUR VIEW

• Timely venture. The venture into co-developing an industrial park with Eco World (property developer) is timely and expected to yield value accretion to the earnings outlook in the mid to long term, an important strategic step for SD Guthrie as it ventures to create more revenue streams.
• This is in line with the recent rebranding strategy, which changed its name to "SD Guthrie" (announced on April 29). It is a strategic move to assert full control over its plans for the vast landbank and explore unique opportunities in property development.
• Small portion of planted are. According to our study, the 1,166-acre (472 ha) site accounts for only 1.3% of Negeri Sembilan's total planted area. It is conveniently located near KLIA and the North-South Expressway - Southern Route, approximately 30 to 40 minutes away.
• With the land valued at RM2.95b in GDV, the new hub is set to benefit from the Malaysian Vision Valley 2.0 (MVV 2.0) economic corridor, which spans a range of high-growth sectors, including logistics, biotechnology, E&E, and aerospace industries.
• Lower gearing, positioning it well to pursue new vertical income streams. Note that, MVV 2.0, launched in Dec-2018, spans 379,087 acres across the Seremban and Port Dickson districts, and is designed to complement the growth of Greater Kuala Lumpur. Based on the recent 3Q results, with a healthy balance sheet in hand - a gearing approximately 0.25x (net debt stabilised to RM4.9b due to appreciation in Ringgit). Compared to the property sector average of 0.4x, the company's lower gearing reflects its stronger financial footing, positioning it well to pursue new vertical income streams moving forward.
• New revenue pillars. In the last briefing, the management projected that the recurring earnings segment would include new revenue pillars, such as the industrial segment (through industrial land sales to joint ventures and third parties, as well as a share of JV earnings). There was no guidance on that, however, we anticipate, this industrial hub will offer compelling profits, backed by a double-digit margin; hence, the venture into this segment will yield value accretion to SD Guthrie's earnings outlook in the mid to long term.
• Maintain BUY. Earnings forecasts remain unchanged at this juncture pending final details on the projects. Maintain BUY with an unchanged TP of RM5.43.

Source: MIDF Research - 19 Dec 2024