Extracting value through change, focus on affordable segment

This article first appeared in City & Country, The Edge Malaysia Weekly, on November 6, 2017 - November 12, 2017.

Sime Darby Property Berhad - 201702 BUP February Report

The pure-play strategy is expected to improve the execution capability of our company through better talent sourcing, management and human capital development.” — Amrin

Chief operating and transformation officer Datuk Wan Hashimi Albakri (third from left) with The Edge Media Group publisher and group CEO Ho Kay Tat, president of the Malaysia-China Business Council and prime minister’s special envoy to China Tan Sri Ong Ka Ting, EdgeProp.my managing director and editor-in-chief Au Foong Yee and City & Country editor Rosalynn Poh

KL East is one of SDP’s notable developments

A bird’s-eye view of Serenia City in Sepang

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No. 3 – Sime Darby Property Bhd

It has been an eventful year for Sime Darby Property (SDP) with the introduction of its pure-play strategy and the appointment of a new managing director. Despite the changes, the property division of conglomerate Sime Darby Bhd has held steady, and has once again made it to the top ranks of The Edge Malaysia Top Property Developers Awards 2017.

“The pure-play strategy is set to unlock value for our shareholders as we will have clarity and be better positioned for further growth in the property sector,” says SDP’s newly minted managing director, Datuk Seri Amrin Awaluddin, in an email interview.

On Jan 26, Sime Darby Bhd announced that its board would proceed with a plan to pursue a pure-play strategy involving its listed entities in the plantation, property, trading and logistics sectors in order to unlock their value. The group undertook to distribute its entire shareholding in Sime Darby Plantation Sdn Bhd and SDP to entitled shareholders upon the revamp. On July 28, it was announced that Amrin would spearhead Sime’s property division.

“This new strategy is expected to improve the execution capability of our company through better talent sourcing, management and human capital development. This will help accelerate performance improvements and growth through a more distinct strategic and business focus,” says Amrin, who was formerly the group managing director of Media Prima Bhd.

Founded in 2007, SDP is renowned for pioneering mega-townships, master planning and infrastructure. The company has built 23 townships and developments so far, including USJ Heights, Ara Damansara, Putra Heights, Bukit Jelutong, City of Elmina, Bandar Ainsdale and KL East.

It is well known as the developer of the thriving Subang Jaya. Transformed in the 1970s by the then Sime UEP Properties Bhd from old rubber estates, Subang Jaya has grown into a major township in the Klang Valley. On the international front, SDP together with S P Setia Bhd and the Employees’ Provident Fund are the developers of the iconic Battersea Power Station project in central London.

In terms of products, SDP has focused more on the affordable segment this year. “Our focus has been on the affordable segment, targeted at first-time homebuyers, with emphasis on cost effectiveness, innovation, customer centricity, quality and sustainability,” says Amrin, who assumed his role in September.

Despite the slowdown in the property market, SDP posted a profit before interest and taxes of RM817 million on revenue of RM2.56 billion in FY2017 (ended June). “Our total sales stood at 1,765 units with a gross sales value of RM1.91 billion,” Amrin says.

As at June 30, SDP owned about 16,938 acres of undeveloped land bank in strategic locations in the Klang Valley, Negeri Sembilan and Johor. “Some 10,212 acres of remaining developable land bank is located within our existing 23 active townships as well as integrated and niche developments. These developments are estimated to generate a gross development value of RM86.5 billion,” says Amrin. “The remaining 6,726 acres are for future development.”

“Our developable land bank will increase by 1,944 acres following the completion of a sales and purchase agreement with Sime Darby Plantation. The land in Negeri Sembilan is earmarked for the Malaysia Vision Valley project,” he adds.

Amrin shares with City & Country via email how SDP plans to move ahead with its upcoming launches — Lot 15 at Subang Jaya City Centre (SJCC) and its other affordable products, and to reinforce its brand through the group’s new key strategies.

City & Country: How would you review Sime Darby Property’s performance in FY2017?

Datuk Seri Amrin Awaluddin: SDP closed FY2017 with numbers that continue to reflect the challenging environment in the property market. This is mainly due to volatile economic conditions, weak customer sentiment and cooling measures that affected the industry.

In FY2017, we focused on the affordable segment, targeting first-time homebuyers. We also continued to focus on enhancing our visibility and positioning through branding efforts.

Since its inception, what has changed in SDP? How will it impact the company and its shareholders?

After the change, SDP will have direct access to capital markets and funding flexibility for better focused capital management and customised growth strategies. Investors will be able to directly participate in the equity and growth of the company with greater visibility of our financial performance.

What are some of the challenges that come with the pure-play startegy?  What are your plans to overcome them?

As part of a conglomerate, SDP was able to leverage its balance sheet strength and draw on synergies with the other business divisions. This allowed the company to make opportunistic investments, such as the Battersea Power Station project, and it provided access to strategic land bank in the Klang Valley, Negeri Sembilan and Johor. SDP also leveraged centralised procurement to manage material costs and share in talent development at the group level.

Now, as an independent entity, SDP will have greater focus and agility. From a governance point of view, decisions can be made faster as there is only one board of directors instead of two currently. It will also be more agile operationally, allowing the company to extract more value from its strategic land bank. This will be achieved by enhancing our presence in township development, which is our core expertise. For instance, the demand for landed properties augurs well for townships located along the Guthrie Corridor Expressway.

SDP is also taking steps to reinforce its land bank with agreements to add on land in growing areas like Negeri Sembilan, in particular for the Malaysia Vision Valley project.

Which of SDP’s product segments was the best performing in FY2017? Which segment will you be focusing on in FY2018?

Affordable to mid-range landed properties are SDP’s best performing product segments. For example, the encouraging response to Phases 3 and 4 of Elmina Valley in our City of Elmina township shows that despite challenging market conditions, demand remains strong for the right products in the right location and at the right price. Phase 3 recorded a take-up rate of close to 70% within two days of the launch while Phase 4 was fully sold as at June this year.

New developments will be launched, taking into account the prevailing demand and market sentiment. We plan to focus on landed properties in the City of Elmina, Serenia City, Bandar Bukit Raja and Bandar Universiti Pagoh, as the demand for such products is strong.

Where do you want to take the company on branding and growth?

The SDP brand is highly recognisable in the Malaysian property industry. The challenge is to keep it fresh and relevant to our existing and potential customers.

With our established track record in property development in Malaysia of over 40 years, we have built meaningful relationships with our customers and have benefited from a sizeable number of repeat purchasers. We continuously nurture and enhance these relationships through initiatives such as a stringent customer satisfaction index and engaging a neutral standards accreditation body to measure our customer service practices.

We also maintain an online customer portal that features a reporting channel where purchasers can report defects. The portal also provides a manual for homeowners that features a list of suppliers and subcontractors our customers can contact, renovation guidelines and other useful information.

SDP will also continue to improve PRIME, our customer loyalty programme, which offers numerous benefits and privileges to our homeowners,  including discount eligibility of 1.5% to 3% on subsequent selected property purchases, introducer incentives, priority for previews and launches of our projects, special invitations to exclusive PRIME events or activities and exclusive discounts from participating retailers.

Moving forward, what are some of SDP’s strategies?

We will prioritise our developments based on market demand and offer products that are within an appropriate and affordable price range. This involves leveraging our core strength in township development, where we have built successful townships like Subang Jaya, Bukit Jelutong and Taman Melawati.

We plan to increase recurring income over a period of time by retaining and operating selected key assets. We are also looking to harness the growing demand for logistics and warehouse facilities with the growth of online businesses by embarking on build-to-suit facilities in Bandar Bukit Raja in Klang with a major Japanese conglomerate. Our strategy is to grow our recurring income and diversify our revenue base. Bandar Bukit Raja is ideal for logistics, warehousing and industrial activities due to its connectivity to major transport nodes and sea ports.

The company will also focus on our land bank management strategy to optimise value. This involves prioritising development on existing land bank located along the Guthrie Corridor Expressway, such as the City of Elmina, leveraging other areas with development potential such as Bandar Bukit Raja and building a pipeline of land with good connectivity and major infrastructure.

New growth areas, such as Bandar Universiti Pagoh, will also be our focus as the township has four higher education institutions and more than 10,000 students, which represents a growth opportunity for our company.

We will also review and improve our sales and marketing strategy. This includes reviewing our sales packages to attract new potential customers and increase our marketing efforts digitally, apart from promoting our products to the right audience. We will continue to review our PRIME customer privileges to ensure the members receive better benefits. SDP will also continuously improve on operational efficiency and cost management.

What are your ongoing and upcoming projects?

For the remaining months of 2017, we plan to launch signature projects at our townships. They include Denai Alam (City of Elmina), Serenia City, Bukit Jelutong, Nilai Impian and Bandar Universiti Pagoh.

Ferrea at Denai Alam will comprise 228 units of 2-storey link houses with an estimated GDV of RM177 million. A2 at Serenia City will have 302 units of 2-storey link houses with a GDV of RM166 million. Meanwhile, Phase 5 of Bukit Jelutong will be a serviced apartment block on 7.52 acres with a GDV of RM343 million.

Orkid at Nilai Impian will have 132 units of 2-storey link homes with a GDV of RM61.7 million while Harmoni Damai at Bandar Universiti Pagoh will have 112 units of 2-storey link homes with a GDV of RM42.2 million.

In terms of the affordable segment, under the Rumah Selangorku scheme, we expect to build a total of 4,000 units in Bandar Bukit Raja, USJ Heights, Putra Heights and Elmina West. In March, SDP launched the Harmoni 1 affordable homes (a Rumah Selangorku scheme) in Putra Heights.  Harmoni 1, SDP’s first divergent dwelling design (D3) sustainable homes project will have 1,700 medium-cost apartments. With an estimated GDV of RM355 millon, the development will comprise four apartment blocks and will have units with built-ups of 800 to 1,000 sq ft. The units are priced from RM170,000 to RM270,000.

This month, we plan to launch Lot 15 at SJCC. This is targeted at young couples, families and first-time homebuyers. Lot 15 is a transit-adjacent development [along the LRT line]. It will sit on 2.2 acres and will have an estimated GDV of RM269.2 million. Comprising two 20-storey towers, Lot 15 will offer 361 homes with built-ups of 624 to 1,001 sq ft. Selling prices are still being finalised.

We also plan to launch Jendela, high-rise development at Alya in Bukit Kiara, Kuala Lumpur. More details will be revealed soon.