This article first appeared in The Edge Financial Daily on April 5, 2018

Sime Darby Property Bhd
(April 4, RM1.38)
Maintain add with a target price (TP) of RM1.85: We recently hosted Sime Darby Property Bhd’s management in a non-deal roadshow in London, the UK, during which we met 10 fund managers and buy-side analysts at the two-day event. Investors were generally positive on the group’s outlook, given its strategic land bank and ongoing transformation post demerger. Investors were interested in the group’s UK Battersea Power Station joint-venture project, its transformation progress and growth strategies post demerger.

Currently, Sime Darby Property is still Malaysia’s largest property developer in terms of land bank size (20,743 acres or 8,394ha), with remaining gross development value (GDV) of RM96 billion. This excludes the additional 20,599 acres of land under option agreements with Sime Darby Plantation and Sime Darby Bhd. Most of the group’s land bank is strategically located with good connectivity — either with easy access to expressways or public transportation.

Sime Darby Property is disposing of non-strategic land outside of its key developments to enhance land value and expedite development via other developers. The group has identified land for disposal (in Kedah) and will be rewarding shareholders through dividends. Given its near-net cash balance sheet and potentially higher profit from land disposals, we do not rule out the possibility of a higher dividend payout in the future versus its current dividend policy of a 20% payout.

Sime Darby Property also organised a site visit to its 40%-owned Battersea Power Station in conjunction with the roadshow to provide investors greater insight into the project. The Battersea Power Station spans across 42 acres of land, with an estimated total GDV of £9 billion (RM48.8 billion) that will be launched over seven phases. The overall project looks attractive, as the land acquisition cost of £400 million translates into only about 4% of the total estimated GDV (versus 10% to 20% for normal projects). Phase 1 has been completed, and Phase 2 will be ready by end-2020.

We value the stock based on a 50% discount to our estimate of its revalued net asset value, translating into a TP of RM1.85. The large discount versus an average of 35% we attach to the other property stocks under our coverage is to reflect the slower monetisation and longer gestation period of its considerable land bank. Our valuation does not include the potential value enhancement from the additional land bank of 20,602 acres under Malaysia Vision Valley option agreements and land option agreements.

Potential rerating catalysts include a ramp-up in launches and new property sales. Key risks to our call include a further deterioration in sentiment in the property market and lower-than-expected property sales. — CGSCIMB Research, April 3