Sime Property’s Unbilled Sales Of RM3.6 Billion Will Underpin Earnings For Next 3 Years

Sime Property’s 1QFY23 net profit and sales met expectations, being bullish on industrial properties, it will capitalise on this segment with more new product launches said investment house Kenanga. Its current record unbilled sales of RM3.6b will underpin its earnings for the next three years. The house maintains its forecasts, TP of RM0.55, and OUTPERFORM call.

The first quarter’s core net profit of RM61m came in within expectations at 22% and 19% of the house’s full-year forecast and the full-year consensus estimate, respectively. Revenue surged 43% as labour shortage eased. However, it’s core net profit only grew 27% due to widened losses at 40%-owned Battersea, partially mitigated by higher interest income from rising cash holdings.

Key takeaways from the result briefing- sales for the quarter were RM685m (backed by RM1.0b of new launches) they were within expectation at 25% of full-year assumption of RM2.8b but ahead of its internal full-year target of RM2.3b. However, SDP is not raising its target given macro headwinds particularly sustained high inflation and interest rates. Given market uncertainties, it leaves its option open with regard to up to RM2b worth of new launches for the rest of the year. However, it is bullish on industrial properties and will capitalise on this segment with more new product launches. Its current record unbilled sales of RM3.6b will underpin its earnings for the next three years.

Its Battersea JV incurred substantially larger losses this quarter, largely due to the sale of two completed large apartment units (from Phase 2) where the selling prices were below book value. Given that the JV Co. has seven remaining such large units, it is currently evaluating if impairments are necessary. On the brighter side, Battersea continues to repatriate cash back to its shareholders and targets to repatriate c.GBP100m for the rest of the year.

Its LOGOS JV industrial development fund has secured J&T as its first tenant at Metrohub2 whereby J&T will be occupying 21% out of the total 800k sf area (with option to add another 23% of space). It guides that yields are within its 6.5% -7.0% target. Kenanga is maintaining earnings forecasts and TP of RM0.55 based on an unchanged 65% discount to RNAV – in line with peers’ discount range of 60%-65%. There is no adjustment to TP based on ESG given a 3- star rating as appraised by the house.

SDP is liked for its wide product range enabling it to capitalise on landed residential and industrial products while the high-rise segment is weighed down by oversupply, its mature township projects that provide recurring sales, and its seemingly effective digital marketing through social media platforms, in addition to the conventional sales channels.

Risks include (i) a prolonged downturn in the local property market, (ii) rising mortgage rates further hurting affordability, (iii) rising construction cost, and (iv) risks associated with overseas operations.

Previous articleGraft in Petronas, LIMA, Inflation Take Up Salient Headlines
Next articleNestcon Bags RM190 Million KL High Rise Job

LEAVE A REPLY

Please enter your comment!
Please enter your name here