Nomura Commends On SDP’s Diversified Revenue Streams

Nomura Group, a global financial services group, has initiated a Buy rating on Sime Darby Property (SDP) with a target price of RM1.20.

Nomura, in a note today, said they liked SDP for its diversified revenue streams, planned transformation into a real estate company, strong land bank, and good sales visibility.

They view the company’s FY24F sales target of MYR3bn as conservative and expect it to record largely flat y-y sales for the period at MYR3.3bn. Given the company has registered strong property sales since FY21, Nomura expects continued growth in revenue recognition, and project revenue and net profit CAGRs of 5% and 7%, respectively, through FY26F.

SDP’s industrial sales increased from 14% of revenue in FY20 to 31% in FY23, resulting in gross margin expansion. The company currently has about 2,900 acres of industrial land remaining, with a total remaining gross development value (GDV) of MYR16bn – Nomura deems it well-placed to take advantage of the increasing industrialisation in the country, given its land bank along the west coast of peninsular Malaysia.

Recurring revenue streams can protect earnings during a downturn

Through SDP’s SHIFT25 strategy, the company plans to have 25% of its business coming from its recurring income portfolio and other businesses. This will be done by using the Investment & Asset Management (IAM) business to invest in projects to create recurring revenue streams.

The IAM business currently has about 7.7mn square feet of total net leasable assets spread across the commercial, retail and industrial and logistics sectors.

Nomura believes the MYR1bn Industrial Development Fund -1, launched to develop the E-Metro Logistics Park in Bandar Bukit Raja, could emerge as the template for the company going forward if it is able to successfully develop the project.

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