Comprehensive Analysis of Sime Darby Property

November 21, 2024 – Prepared by Maybank Investment Bank Berhad

Introduction

The latest report from Maybank Investment Bank Berhad provides a deep dive into Sime Darby Property (SDPR MK), a prominent player in Malaysia’s real estate sector. The report shines a spotlight on the company’s robust performance in the third quarter of 2024, highlighting its impressive financial metrics and strategic moves that have exceeded market expectations.

Sime Darby Property: Exceeding Expectations

Sime Darby Property reported a core net profit of MYR133 million for the third quarter of 2024, surpassing both analysts’ and market expectations. Despite an 11% year-over-year decline and a 16% quarter-over-quarter decrease, the results were still 5% above projections. The company’s nine-month locked-in property sales reached MYR3.2 billion, also exceeding expectations.

Financial Performance and Sales

The company has shown a solid performance with a 3Q24 core net profit of MYR132.6 million. This performance lifted the nine-month core net profit to MYR413.9 million, showing a 50% increase year-over-year. The better-than-expected earnings were driven by stronger operating margins, which counterbalanced losses from its 40%-owned Battersea Power Station project.

Sales Goals and Strategy

SDPR is on track to exceed its FY24 sales goal, with MYR3.2 billion in locked-in property sales, representing 91% of SDPR’s and 88% of the projected sales goal for the fiscal year. The sales mix comprises 32% industrial projects, 30% high-rise properties, 20% landed, and 14% commercial properties. With secured total bookings of MYR1.9 billion as of October 2024, the company is poised to surpass its sales assumptions.

Earnings Adjustments

The report from Maybank Investment Bank Berhad has updated the FY24/25/26 earnings forecasts, increasing them by 8%, 31%, and 20% respectively. This adjustment accounts for a higher FY24 property sales assumption of MYR3.9 billion, alongside revised project margin and progress billing assumptions.

Valuation and Recommendation

Maybank Investment Bank Berhad has upgraded its rating for Sime Darby Property to ‘BUY’, with a 12-month price target of MYR1.66, reflecting a 17% upside from the previous target. The company’s improved fundamentals justify a higher price-to-book (P/B) ratio of 1.2x FY25E, marking the peak valuation since its de-merger.

Risk Factors

The report outlines several risk factors that could impact Sime Darby Property’s earnings estimates and target price. These include slower-than-expected property sales, delays in project approvals, rising building material costs, labor shortages affecting project deliveries, and potential further impairment losses from the Battersea Power Station project.

Conclusion

Sime Darby Property has demonstrated resilience and strategic acumen in the face of market challenges, with its strong financial performance and promising sales trajectory. The Maybank Investment Bank Berhad report provides a comprehensive analysis that underscores the company’s potential for growth and profitability in the coming years. With a ‘BUY’ recommendation, Sime Darby Property is well-positioned as a lucrative investment opportunity in the real estate sector.