CSG-CIMB ups target price for Sime Darby Property on diversified products, high unbilled sales, strong balance sheet

• Sime Darby Property said demand for its landed property remains strong with an average take-up rate of 80% as of end-March 2023.

KUALA LUMPUR (Aug 11): CGS-CIMB maintained its "buy" call on Sime Darby Property Bhd and raised its target price (TP) by 19% to 87 sen from 73 sen on the group’s diversified product mix, high unbilled sales and strong balance sheet.

CGS-CIMB's revised TP of 87 sen is based on 0.6 times its financial year ending Dec 31, 2024 (FY2024) price-to-book (P/B) value, and is one standard deviation above its five-year historical mean.

In a research note on Thursday (Aug 10), CGS-CIMB said it recently hosted Sime Darby Property for a luncheon where the group’s managing director Datuk Azmir Merican reaffirmed that demand for industrial products remains strong, driven by warehousing, data centres and manufacturing-related businesses.

CGS-CIMB believes that Sime Darby Property “has an edge over its peers in riding the buoyant demand for industrial products” as the group said it was launching up to RM795 million of industrial products in FY2023, as well as carrying 12,000 acres of gross land bank with 3,000 acres designated for industrial development.

Sime Darby Property added that demand for its landed property remains strong with an average take-up rate of 80% as of end-March 2023, exemplified by the group's first high-rise residential launch — Serasi Residences — which registered a take-up rate of 99%.

Thus, CGS-CIMB stated that the property development company is one of its top picks in the sector given its huge land bank, its position as a township developer with a balanced mix of products comprising landed, high-rise residential and industrial products, and its strong financial position, as well as its stock’s decent yields of 3% to 4%.

Currently, Sime Darby Property trades at 0.4 times FY2024 P/B value, below its five-year mean and at a 70% discount to its revalued net asset value, “which, in our view, is unwarranted given the solid earnings visibility fuelled by strong property sales momentum”, the research house said.

It also raised its FY2024 earnings per share forecast by 5.4%.

The group’s first quarter of FY2023 (1QFY2023) property sales of RM688 million already account for 30% of its FY2023 property sales target of RM2.3 billion, alongside its unbilled sales of RM3.6 billion.

Moreover, other re-rating catalysts include timely projection completion and easing of labour shortages that will translate into stronger revenue recognition over the next few quarters, and the group’s continuity in sales momentum that can propel its sales to surpass its target of RM2.3 billion.

Meanwhile, key risks include its larger-than-expected share of losses from its Battersea Power Station joint venture in London, UK, which can drag down overall net earnings, delays in planned launches that would result in missed sales targets.

Lastly, Sime Darby Property’s management shared that the group is looking into solar solutions for its townships, with details still being drawn up. However, it added that the group will likely partner with Tenaga Nasional Bhd on the proposed solar panel and ground-mounted solar farms.

As the time of writing, the group gained one sen or 1.69% to 60 sen, valuing it at RM40.5 billion.

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