In maintaining its “buy” recommendation, the research house said its decision was also influenced by the company’s diverse product range, substantial unbilled sales, and strong financial standing.
The revised TP of 87 sen is based on a price-to-book (P/B) value of 0.6 times for the fiscal year ending Dec 31, 2024 (FY2024). This value is one standard deviation above its average historical mean over a five-year period.
In a research note yesterday, CGS-CIMB revealed it had hosted Sime Darby Property for a luncheon where its managing director Azmir Merican emphasised the sustained strong demand for industrial products.
This demand is primarily driven by factors such as warehousing, data centres, and manufacturing-related enterprises, it said.
“Sime Darby Property holds a competitive advantage over its competitors in tapping into the thriving demand for industrial products,” the note said.
The company is set to introduce industrial products worth up to RM795 million in fiscal year 2023. It also possesses a considerable land bank of 12,000 acres, of which 3,000 acres are designated for industrial development, it noted.
“Sime Darby Property conveyed the demand for its landed properties remains robust, boasting an impressive 80% average take-up rate as of the end of March 2023,” it said.
Given these factors, CGS-CIMB considers Sime Darby Property a prime choice within the sector due to its extensive land holdings, its role as a comprehensive township developer with a well-balanced product portfolio encompassing landed, high-rise residential and industrial offerings.
Solid financial position
CGS-CIMB said the company’s solid financial position and its stock’s attractive yields of 3% to 4% further enhances its appeal.
At present, the developer trades at 0.4 times the FY2024 P/B value, which is lower than its five-year average and presents a 70% discount compared to its revalued net asset value.
The research firm believes “this undervaluation is unjustified”, given the strong earnings visibility propelled by robust property sales momentum. Consequently, it has raised its earnings per share forecast for FY2024 by 5.4%.
Sime Darby Property’s first quarter of FY2023 saw property sales of RM688 million, which constitutes 30% of its FY2023 property sales target of 2.3 billion. Additionally, it holds unbilled sales worth RM3.6 billion.
Potential catalysts and risks
The report identified several potential catalysts for a re-evaluation of the counter, including on-time project completions and mitigation of labour shortages, which would result in improved revenue recognition across the upcoming quarters.
“The consistent sales momentum that could potentially outperform the RM2.3 billion sales target is also seen as a positive catalyst,” it added.
CGS-CIMB also highlighted some notable risks for the group. These include the possibility of greater-than-anticipated losses from the Battersea Power Station joint venture in London, UK, which could impact overall net earnings. Delays in planned project launches that lead to missed sales targets also pose a risk.
The management also revealed its focus on exploring solar solutions for its townships, although details are still sketchy.
The company is likely to collaborate with utility giant Tenaga Nasional Bhd for the proposed solar panel and ground-mounted solar farms.
At 3.44pm, Sime Darby Property’s shares were 1 sen or 1.69% higher at 60 sen, valuing the developer at RM40.8 billion.