Sime Darby Property (SDPR)’s quarter one 2023 earnings missed expectations. However, property sales remained robust at RM688.5 million, while the industrial segment was a major sales driver.
As its RM1.6 billion in bookings are not yet converted into contractual sales, management’s RM2.3 billion target looks very achievable. Despite near-term political risks, RHB Research (RHB) thinks the stock warrants a re-rating, given its improving earnings quality and bright growth outlook for its property sales.
The sequential drop in property development revenue was due to SDPR chalking much stronger property sales in quarter four 2022. Sales in Bandar Bukit Raja, Elmina, Nilai Impian, Elmina Business Park and Hamilton Nilai were the major revenue contributors, said RHB in the recent Malaysia Results Review Report.
While revenue for the property investment unit remained resilient despite the higher operating costs that crimped profit margins, the leisure segment booked improved numbers due to higher contributions from events and functions, F&B and golfing activities.
Meanwhile, its share of loss from joint ventures was higher, mainly due to a RM16.1 million loss from property development, arising from higher losses from the Battersea Power Station project due to escalating operating and selling expenses.
Unsold completed inventory stood at RM274 million, relatively unchanged from last year. Net gearing fell slightly to 0.20x, from 0.22x in quarter four 2022.
New property sales totalled RM688.5 million versus RM955 million in quarter four 2022. Note that the industrial segment has become the major contributor, accounting for 55% or RM376 million of total sales. 73% of sales achieved are from projects launched over the last 1-2 years.
According to plan, a total of RM3.05 billion worth of products will be rolled out for the year and, after launching a RM1 billion gross development value project in quarter one 2023, management is looking to launch RM1.3 billion worth of new projects in quarter two 2023, comprising mainly landed and high-rise residential properties.
“We maintain our financial year 2023 to 2025 earnings forecasts, as the second half is a typically stronger period while construction activities should pick up further in tandem with the easing labour shortage issue. SDPR’s unbilled sales stood at RM3.6 billion, unchanged from the quarter four 2022 level,” said RHB.
