TA Securities positive on Sime Darby Property's move beyond property development

KUALA LUMPUR (April 18): TA Securities Holdings Bhd's Investment Research remains upbeat about Sime Darby Property Bhd's (SDP) ongoing efforts to diversify and broaden its revenue streams beyond property development.

In a note released on Friday, the research house commended SDP for reaching another milestone in its transformation from a pure-play developer to a real estate firm by 2025.

"We are sanguine about SDP's long-term prospects, which are supported by its four corporate priorities, namely diversifying income streams through the expansion of its investment property portfolio and industrial and logistics development, strengthening sustainability and financial management capabilities, initiating digital transformation, and developing new capabilities, particularly in effective land banking management," it said.

However, TA Securities said key risks to its recommendation include escalating raw material and labour costs, faster-than-expected increase in interest rates and stringent lending policies, which may weigh on home prices and dampen market confidence.

As such, the research firm has reiterated a "buy" call on SDP and maintained its target price of 83 sen.

TA Securities noted that six months after SDP announced the joint venture (JV) with LOGOS Property to establish an industrial development fund (IDF), it has received preliminary commitments of 50% for the first close of its inaugural IDF at US$250 million.

"The funding exceeded the initial target capital commitment of RM850 million by 18%, indicating strong investors' interest in high-quality industrial and logistics assets.

"According to the management, the first round of funding was fully raised from local investors.

"We also gather that institutional investors are nearing the end of their due diligence and investment approval processes, which means that the next round of funding is likely to close soon," said the research house.

The IDF's maiden earnings contribution, in the form of new recurring income streams such as fund management and developmental services fees, is projected to progress in the second half of this year, according to the management.

TA Securities said while the earnings contribution is expected to be modest in the near term, it believes that the JV will generate considerable recurring income for the group over time as the fund expands.

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