Kenanga in its research report states the Sime Property 1HFY22 results met expectations while sales of RM1.9 billion surpassed expectations. With another RM1.3b launches lined up for 2H, the research house is raising its FY22F sales assumption to RM3.2 billion from RM2.5b. Kenanag is also fine-tuning its FY23F net profit forecast by 4% with a target price at RM0.55.
The first half net profit of RM108m (adjusted for RM53m gains from the disposal of subsidiaries) came in within expectation at 46% and 48% of consensus estimates. Profits improved 35% YoY despite a flat revenue as operating margins for all three segments, i.e. property development, property investment, and leisure recovered from a pandemic-stricken year previously. Note that its property development segment would have recorded higher progress billings if not for the labour shortage issue faced during that period.
Kenanga believes such industry-defying achievements were made possible due to, rightly priced products within its matured townships and efficient use of various marketing initiatives to reach out to suitable target buyers. For 2H, Sime Property has earmarked another RM1.3b worth of launches mainly comprising landed and high-rise residential. Consequent to the outperformance, FY22F sales target has been forecast to RM3.2b. Its unbilled sales stood at a record RM3.4b as at end-1HFY22.
Kenanga is maintaining the FY22 full-year earnings but lifts FY23F earnings by 4% on the higher FY22F sales assumption of RM3.2b. After rationalising the valuation method to 65%-discount to RNAV (in line with peers’ 60-65% range) from PBV, TP is maintained at RM0.55.
Sime Property is liked due to its robust earnings visibility which is less affected by the high-rise oversupply situation given its geographically diversified land banks which are suited for landed/industrial products, and effective digital marketing through social media platforms which leads to low selling and marketing expenses and strategically located land banks within the matured township for ease of GDV realization.
Risks to call include: a prolonged downturn in the local property market, rising mortgage rates further hurting affordability, rising construction costs, and risks associated with overseas operations
