This article first appeared in The Edge Financial Daily on September 3, 2019

Sime Darby Property Bhd
(Aug 30, 88 sen)
Maintain buy with an unchanged fair value of RM1.05: Sime Darby Property Bhd (SimeProp) held an analyst briefing yesterday to shed more light on its recently announced first half of financial year 2019 (1HFY19) results. Below are the key takeaways:

SimeProp chalked up new sales of RM1.4 billion in 1HFY19 and is on track to achieve its sales target of RM2 billion to RM2.5 billion for FY19. Management is confident about achieving its sales target following the success of the Primetime 8 and Pop Raya campaigns, which saw encouraging take-up rates.

SimeProp is targeting to launch projects worth RM1 billion in gross development value (GDV) in 2HFY19 with its main focus on landed residential properties. So far, SimeProp has launched 2,082 units with GDV amounting to RM1.2 billion in 1HFY19. Given the soft and competitive market, management noted that new launches shall be aligned to market demand in relation to price, type, location and timing to ensure high take-up rates. The key focus will be landed residential properties in the affordable to mid-range range segment (between RM500,000 and RM800,000) in Elmina, Bandar Bukit Raja and Serenia City.

SimeProp will carefully review its new launches, taking into account of existing inventory level. SimeProp will ramp up its efforts on completed but unsold products of 749 units (quarter-on-quarter: 829 units) to improve working capital.

Following the disposal of Darby Park Executive Suites and 300 acres (121.4ha) of land in Bukit Selarong, Kedah, SimeProp will continue to reduce and monetise its non-core assets with the proposed disposals of 1.16 acres of freehold land in Jalan U Thant, Kuala Lumpur; and two units of holiday bungalows on 1.71 acres of freehold land in Pulau Tikus, Penang. SimeProp is targeting to complete the disposals by the fourth quarter of FY19.

To recap, SimeProp registered a core net profit of RM239 million (+197.9% year-on-year) for 1HFY19, mainly attributed to property development contribution from Bandar Bukit Raja, Denai Alam, Nilai Impian/Utama townships and Cantara Residences in Ara Damansara.

Nevertheless, we remain cautious about the property sector due to: i) the generally still elevated home prices; ii) the low loan-to-value offered by banks; and iii) house buyers’ inability to qualify for a home mortgage due to their already high debt service ratios. — AmInvestment Bank, Aug 30