CGS-CIMB Research keeps Add for Sime Darby Property but lower TP

Sime Darby Property HQ in Ara Damansara

KUALA LUMPUR: CGS-CIMB Equities Research is retaining its Add recommendation for Sime Darby Property due to its solid balance sheet and stronger sales momentum but lowered the target price.

It said on Thursday it had reduced its FY20-21F EPS by 5%-13% to reflect the changes in project revenue recognition and JV contribution.

“We also adjust our TP to RM1.20 (from RM1.32) based on a 65% discount to RNAV, after updating our RNAV computation following the latest results.

“Potential re-rating catalysts are a ramp-up in launches and new property sales. Key risks to our call include a further deterioration in sentiment in the property market, and lower-than-expected new property sales, ” it said.

CGS-CIMB Research said Sime Darby Property’s FY19 core net profit (excluding RM242min gain from disposal of properties, RM105mil land disposal gain, RM150mil impairment/provision, RM67mil tax uplift, and RM22mil from others) came in below expectations, at 95% of our and 66% of Bloomberg consensus full-year estimates.

The research house said the underperformance was due to higher-than-expected losses from joint ventures.

Sime Darby Property’s FY19 core net profit nearly doubled to RM312mil vs. RM160mil in FY18, supported by 37% yoy sales growth at its property development segment, mainly from Denai Alam, Bukit Jelutong, Bandar Bukit Raja, Nilai Utama, Serenia City, and Cantara Residences.

FY19 new property sales came in at c.RM2.8bil (excluding RM325mil from land sales) due to aggressive marketing campaigns throughout the year, exceeding its FY19 sales target of RM2.3bil.

CGS-CIMB Research said RM420mil of the new sales came from inventory monetisation, RM1.16bil from ongoing projects, and RM1.23bil from new launches.

Unbilled sales as at end-Dec 2019 were higher yoy at RM1.55bil (vs. RM1.48bil as at end-Dec 2018), due to higher new property sales achieved.

Sime Darby Property launched RM2.3bil gross development value (GDV) of projects in FY19.

The research house expected the company to keep its FY20F sales target at the same level as last year's target, at RM2.3bil.

The reasons were that the property market could remain soft in FY20F due to the prevailing supply overhang situation, absence of the national Home Ownership Campaign (HOC; in effect the whole of 2019), and recent Covid-19 virus outbreak.

Sime Darby Property will focus on: (i) growing its property development segment by offering affordable and mid-range products, (ii) monetise low-yielding assets to unlock value, and (iii) expand further into the industrial and logistics development segment for recurring income.

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