HLIB Research said SDP has turned more upbeat now as opposed to early 2023.
PETALING JAYA: As one of the largest developers of industrial property in the country, Sime Darby Property Bhd
(SDP) is well-positioned to capitalise on the thriving industrial segment, which is benefiting from strong foreign direct investments (FDIs).
In a note to clients, Hong Leong Investment Bank Research (HLIB Research) said SDP’s industrial contribution now accounted for about 33% of group sales for the nine-month period of 2023, from zero contribution in 2019.
“Currently, the industrial segment has a higher margin and also a faster construction time compared to residential propertuy. SDP is the best proxy to the segment as it is the largest industrial-property developer in Malaysia with over RM15bil in remaining gross development value (GDV), with land located in very strategic locations close to Port Klang and the upcoming East Coast Rail Link line stations,” the research house added.
According to the research house, the industrial segment is undergoing a boom given strong FDIs in Malaysia. As global manufacturers seek to de-risk from rising geopolitical tensions, the relocation of their manufacturing base should benefit geopolitically neutral Malaysia, it said.
It noted that SDP has turned more upbeat now as opposed to early 2023 when it adopted a cautious outlook due to concerns about labour shortages, resulting in the group setting a lower sales target for the year compared to the previous corresponding period.
“However, as the year unfolded and the labour situation improved and was subsequently resolved, management’s confidence grew. Consequently, the company revised both sales and launch targets upwards, reflecting a more optimistic stance,” said HLIB Research.
The industrial segment aside, HLIB Research said green shoots are emerging in the residential landed development in the greater Klang Valley region, aligning well with SDP’s expertise and land bank. The group’s strong execution record and well-planned strategies should allow it to ride the new upcycle.
HLIB Research anticipates rising demand and house price appreciation in this segment that could last for years to come, supported by the growing number of people working in Kuala Lumpur.
At the same time, there is limited supply of landed homes in the city, given increasingly scarce land supply, plus more benign competition with fewer developers in the space.
Additionally, road and railway infrastructure connecting the city centre to Selangor and Negri Sembilan is also improving.
“Landed residential is SDP’s forte. As 94% of the group’s remaining GDV is in the greater Klang Valley region, the group is poised to greatly benefit from this trend,” the research house added,
The research house said it now has “a conviction buy” call on the company with a higher target price (TP) of RM1.05 (from 81 sen) based on the estimated revalued net asset value of RM2.10.
“Our TP implies financial years 2023, 2024 and 2025 price-to-earnings multiples of 19.9, 19.8 and 18.4 times, respectively. The group is currently in a sweet spot with exposure to the thriving industrial segment and the improving residential landed market in the greater Klang Valley area,” said HLIB Research.
