KUALA LUMPUR: Sime Darby Property core net profit for the nine months ended March 31, 2018 was slightly below CIMB Equities Research’s expectations at 69% of its full year forecast and at 49% of Bloomberg consensus number due to weaker margin.
The research house said on Friday the underperformance was due to the lower-than-expected gross margin.
The 9MFY18 core earnings (excluding one-off gains from disposal of subsidiary) increased 34% year-on-year, mainly attributed to the stronger pretax profit from its property development segment (+11.8% year-on-year).
Even by stripping out all the land sale gains (1QFY18: gain of RM84.4mil on land disposal, and land acquisition reversal gain of RM13.2mil; 1QFY17: RM79m provision for unsold stocks, and gain of RM259.8m on land disposal), property development’s 9MFY18 pretax profit was actually up by 119% year-on-year.
The 9MFY18 revenue rose 18% year-on-year, solely lifted by the 21% sales growth in the property development division due to higher sales and development activities at Elmina West, Elmina East, Serenia City, Taman Melawati and Serenity Cove, Australia.
The group recorded gross sales value of RM1.3bn in 9MFY18, making up 65% of its FY18 sales target of RM2bil; 60% of the total sales were generated from City of Elmina and Bandar Bukit Raja.
As at 9MFY18, SD Property launched projects with a combined gross development value (GDV) of RM2.26bn, driven by flagship townships, namely City of Elmina, Bandar Bukit Raja, Serenia City and Subang Jaya in Selangor, as well as Bandar Universiti Pagoh in Johor.
“In 4QFY18, the group plans to launch projects with a total GDV of RM632mil. Unbilled sales as at end-March 2018 stood at RM1.5bil, representing approximately 0.6 times of FY17 revenue.
“In view of softer gross margin, we cut our FY18F EPS estimate by 7.3%. Our target price is unchanged at RM1.85, based on a 50% discount to our estimate of its RNAV.
“The large discount vs. an average of 40% that we attach to the other property stocks under our coverage is to reflect the slower monetisation and longer gestation period of its considerable land bank.
“Maintain Add as we see the recent ramp-up in launches and new property sales as potential re-rating catalyst,” said CIMB Research.