Sime Darby Property Bhd (July 22, RM1.02)
Maintain buy with an unchanged target price of RM1.14: We are positive on Sime Darby Property Bhd’s near-term prospects after a recent meeting with the management.
The group’s financial year ending Dec 31, 2019 (FY19) sales target of RM2.3 billion remains intact, while the monetisation of low-yielding and non-core assets is also on track.
We were also encouraged by the management’s efforts to expand its recurring income base through the development of built-to-suit industrial space, which is less competitive compared with other commercial sub-sectors such as retail and office space.
While first quarter ended March 31, 2019 (1QFY19) sales of RM403 million only accounted for 18% of the management’s sales target of RM2.3 billion, the management believes the sales target is on track, benefitting from the group’s ongoing marketing efforts and the government’s homeownership campaign.
The group has lined up about RM1.7 billion worth of launches from May to December 2019, concentrating on landed residential properties within the affordable to medium price range (RM500,000 to RM700,000).
During the meeting, the management reiterated the group’s focus to adopt an active land bank management practice, given its sizeable undeveloped land bank.
It will enhance the role as a master developer for faster turnarounds of future developable land bank of about 8,400 acres (3,399ha).
In addition, the group plans to expedite the disposal of several non-strategic land parcels, in line with its asset monetisation initiatives.
For the remainder of the year, the management expects to conclude the sale of small parcels of land in U-Thant, Kuala Lumpur and Pulau Tikus, Penang (about 20 acres in total).
The group will continue to unlock the value of its non-core assets, and reinvest and expand its recurring income asset portfolio, particularly managed industrial parks.
Capitalising on strong demand for industrial properties, the management has identified strategic locations for industrial developments within the group’s key townships, such as Bandar Bukit Raja in Klang, Serenia City in Sepang and Nilai, Negeri Sembilan.
Over the long term, the reinstatement of the East Coast Rail Link and potential revival of Kuala Lumpur-Singapore high-speed rail (HSR) would also benefit Sime Darby Property’s land bank near/along the proposed stations of the rail alignment.
Meanwhile, the Malaysia Vision Valley 2.0 (MVV 2.0), which is now a state-led private sector-driven development, was officially launched by the menteri besar of Negeri Sembilan on Dec 13, 2018.
Sime Darby Property currently owns about 2,838 acres of land within MVV. The group will have access to a further 8,793 acres of land via the MVV option agreement with Sime Darby Bhd.
Being a master developer of MVV, the management is accessing various options to develop the land, including looking for joint-venture partners and/or developing the land on its own gradually.
Should the HSR being revived, we believe MVV would return to the radar of local and foreign investors. — TA Securities, July 22
This article first appeared in The Edge Financial Daily, on July 23, 2019.
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