KUALA LUMPUR: RHB Research is maintaining its Buy call on Sime Darby Property and a target price of 88 sen, which is 52% above its Wednesday’s closing price of 58 sen, with a 3% yield.
The research said on Thursday Sime Property’s 3Q20 earnings missed expectations, primarily from RM337.1mil write-downs for the Battersea project in London and RM97.8mil impairment on inventories.
“Stripping off these write-downs, we are upbeat as operating earnings actually saw an improvement. In line with our expectations, property sales picked up strongly post Movement Control Order (MCO), largely underpinned by Sime Darby Property’s successful Spotlight 8 2020 campaigns, ” it said.
It expects the company’s 9M20 new sales which hit RM1.27bil, to exceed management’s RM1.4bil sales target for the year.
To recap, RHB Research said although the 3Q sequential revenue improved due to accelerated construction progress in all property projects post lockdown, 3Q20 net profit was hit by the write-down of inventories and work in progress in the Battersea Power Station project as well as RM97.8mil impairment on inventories for some projects in Malaysia.
“We treat these as core operating items – the unsold units in Phases 2 and 3A will possibly be sold at lower prices in the future and hence, losses are now frontloaded, ” it said.
After missing its interim dividend typically declared in 2Q, Sime Property announced a dividend per share of one sen in 3Q.
Sime Property saw new property sales pick up substantially after the lockdown in 2Q, thanks to the Spotlight 8 2020 marketing campaigns.
The 3Q20 new sales achieved RM559.6mil vs RM377.9mil in 2Q. More than half of the 9M sales were contributed by residential landed properties in Elmina East (Ilham Residences) and Bandar Bukit Raja (Lumira).
Meanwhile, the amount of unsold completed stocks and ongoing projects fell slightly to RM1.88bil from RM1.93bil in 2Q, due to the additions of The Ridge in KL East as well as the industrial lots in Elmina East, as they were completed in the last quarter.
“As 9M20 new sales have already hit RM1.27bil (inclusive of RM118.7mil land sale in Serenity Cove Gold Coast), Sime Property’s full-year sales may well exceed management’s target of RM1.4bil for the year. Sales prospects for 4Q look encouraging on the back of MYR1.1bn worth of bookings backlog as at end-October 2020.
“We revise our FY20 forecast to a net loss of RM390mil to factor in the write-downs while maintaining FY21-22 forecasts. We believe operating earnings will improve from 4Q20F onwards after the kitchen-sinking exercise and Covid-19 impact this year.
“Unbilled sales remained relatively unchanged at RM1.53bil vs RM1.54bil as at 2Q20. Maintain 88 sen TP based on an unchanged 65% discount to realised net asset value, ” RHB Research said.
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