Maybank Investment Bank (Maybank IB) said, today (Feb 26), Sime Darby Property’s (SIMEPROP) 4Q23 core net profit of MYR149m was above expectations.
FY23 locked-in sales of MYR3.3b were above management but in line with their expectations.
Management sets a lower MYR3b sales target for FY24 (-10% YoY).
Maybank IB revised their FY24-25 earnings forecasts by -9% to +11% and raise their TP to MYR0.86 (+11sen) on a higher 0.6x FY24E PBV (from 0.5x) to reflect
SIMEPROP’s healthy balance sheet and large exposure in the industrial and land property segments.
Maybank IB D/G the stock to HOLD given limited upside potential.
Results lifted by better operating margin
Excluding forex gain and MYR33m fair value loss from Senada Mall and its 40%-owned Battersea Power Station (BPS) in UK, SDPR’s 4Q23 core net profit of MYR148.7m (+29% YoY, -0.4% QoQ) lifted FY23 core net profit to MYR423.3m (+35% YoY) or 13%/18% above MIBG/consensus estimates.
The stronger-than-expected 4Q23 results were boosted by better operating margin. SDPR has declared a 2nd single tier DPS of 1.5sen (YTD: 2.5sen); in line.
Balance sheet remained healthy as net gearing declined to 0.22x in end-4Q23 (0.27x in end-3Q23).
Sets MYR3b sales target for FY24
FY23 locked-in property sales of MYR3.3b accounted for 122%/97% of SDPR/MIBG’s MYR2.7b/3.4b sales goal/assumption for FY23. Of the MYR3.3b locked-in sales, 31% was derived from its industrial properties, followed by residential landed (36%) and high-rise (27%).
Contributions from high-rise jumped in 4Q23 due to more high-rise launches during the quarter. For FY24, management has set a lower sales target of MYR3b (-10% YoY), supported by MYR3.9b GDV worth of new launches (34% industrial, 32% landed properties, 31% high-rise).
Earnings adjustments
Maybank IB adjusted their FY24/25 earnings forecasts by +11%/-8.8% after factoring in: i) a sales assumption of MYR3.4b for FY24, ii) actual FY23 results and iii) changes in progress billing assumptions.
SIMPROP’s unbilled sales stood at MYR3.6b as at end-Dec 2023 (0.8x of our FY24E revenue). SIMPROP is focusing on expanding its investment property portfolio for future income sustainability.
Mayabnk IB values SIMPROP at 0.6x FY24E PBV (+0.5SD to mean).
SimeProp Forays Outside of Comfort Zone
SIMEPROP’s FY23 results beat expectations. Its FY23 core net profit jumped 45% driven by strong sales of residential and industrial products, which will remain its key focus in FY24.
Kenanga Investment Bank Berhad (Kenanga) raised their FY24F earnings by 9% and lifted their TP by 22% to RM0.84 (from RM0.69) but downgrade their call to MARKET PERFORM from OUTPERFORM after the recent run-up in its share price.
Above expectations
SIMEPROP’s FY23 core net profit of RM398.2m (excluding RM9.7m reversal of provisions) beat our forecast and full year consensus estimates by 6% and 12%, respectively.
The variance against Kenanga’s forecast came largely from stronger-than-anticipated sales of both residential and industrial products.
YoY, its FY23 revenue rose 25%, primarily driven by robust sales in both industrial and residential sectors, coupled with enhanced on-site progress development. Its core net profit surged by a steeper 45% as improved efficiency in sales and marketing efforts alongside stable administrative expenses contributed to an enhanced operating margin at 17.6% (+1.7%), more than offset the doubling in losses from joint ventures, primarily attributed to Battersea due to increased operating and interest costs in the UK.
QoQ, its 4QFY23 revenue saw a decline of 4% attributed to a lumpy land sale recognition seen in the preceding quarter.
On the flipside, operating margins were dragged by fair value adjustments during the period, which resulted in a 16% decline in core net profit.
The key takeaways from its results briefing are as follows:
1. It reported sales of RM3.3b in FY23, which surpassed its sales target of RM2.7b. It has set a sales target of RM3.0b for FY24, underpinned by SEED Homes via a JV with Lagenda, and industrial products. Our forecasts assume higher FY24 sales of RM3.5b as SIMEPROP tends to be conservative in its sales targets. As at end-Dec 2023, its unbilled sales stood at RM3.6b (vs. FY22: RM 3.6b)
2. Looking forward, SIMEPROP is expanding its product mix by introducing more high-rise developments and industrial projects. This initiative reflects a proactive approach to capitalize on market demand and diversify its product offerings.
3. The losses at Battersea expanded in FY23 and there is no sign of a swift turnaround. SIMEPROP is taking a long-term view on the UK market as far as Battersea is concerned. The group is presently exploring options such as revamping the Battersea team and placing greater emphasis on asset management to attract investors and buyers.
4. In 4QFY23, its average take-up rate of properties improved to 80% (vs 3QFY23: 70%). This was despite the introduction of high rise homes and industrial products (in addition to its bread and butter landed homes), signalling opportunities in these segments.
5. Its investment and asset management segment is set to expand, with the group’s upcoming near-term projects including Elmina Lakeside Mall in CY2024 and another in CY2025. KL East Mall, having achieved a 90% occupancy rate and improved yield, highlights the group’s inclination towards further expansion in this sector.
