Sime Darby Property Bhd MARKET PERFORM

Initiating Coverage

01 October 2018

Sime Darby Property Bhd MARKET PERFORM Price : RM1.18 Largest Listed Land Bank Owner Target Price : RM1.25 By Sarah Lim Fern Chieh l [email protected]; Marie Vaz l [email protected]

With 20.6k ac land bank (estimated total GDV of RM137b), Share Price Performance Sime Darby Property Bhd (SIMEPROP) is the largest listed 1.90 land bank owner and the third largest by market cap. It is 1.80 predominantly a Klang Valley-based township developer. 1.70 Given its large arsenal, there are active efforts to unlock 1.60 1.50 value via disposal of non-core assets and inventories 1.40

clearing. Initiate coverage at MARKET PERFORM with TP of 1.30

RM1.25 based on 61% to its FD SoP. 1.20 Largest listed landbank owner. A township developer with over 40 1.10 years of experience and a vast landbank size of 20.6k ac with an 1.00 estimated remaining GDV of RM137b but this does not include the option land agreements with its sister companies of another 20.6k which we estimate has a potential GDV of RM68b. It is also well KLCI 1,793.15 positioned as 87% of its developable GDV is in Klang Valley where YTD KLCI chg -0.2% property demand is the strongest in the country. However, in terms of YTD stock price chg -33.7% market cap, it is only the third largest behind SPSETIA and IOIPG. Stock Information Right products, right price segments. Over Jul-2018 to Dec-2019, Shariah Compliant Yes SIMEPROP will launch RM3.5-4.5b worth of GDV from Klang Valley- Bloomberg Ticker SDPR MK Equity based projects in Elmina West, Serenia City, Putra Heights and SJCC. Market Cap (RM m) 8,025.0 Residentials will make up 76% of the launches with the bulk targeted to Shares Outstanding 6,800.8 be priced below RM800k/unit. The group targets sales of RM1.0b for 52-week range (H) 1.78 6MFPE18E, which is achievable since most are township products. 52-week range (L) 1.04 They are also growing the industrial segment (18% of the launch GDV) 3-mth avg daily vol: 3,190,697 with focus on light industrial and logistics businesses in the Greater Free Float 40% Klang Valley region. So far, 461 ac of land (c. RM5.1b GDV) has been Beta N.A. identified for industrial development, of which, 253 ac (including strategic JVs) will be used for industrial build-to-suit facilities that will be Major Shareholders retained for recurring income purposes. The group aspires to grow its Skim Amanah Saham Bumiputera 43.4% recurring income stream with a target of 10% of PBIT by FY23. Hence, Employee Provident Fund Board 11.0% the decision to retain Pagoh Education Hub. We are also expecting Yayasan Pelaburan Bumiputra 5.2% sale of Battersea Phase 2 Commercial to take place, which will alleviate balance sheet concerns. Summary Earnings Table Active efforts to unlock deep values. Developers with large land FY Jun (RMm) 2018A 2019E 2020E banks are also prone to ‘value traps’ from an investor’s perspective. Turnover 2353 2667 3137 SIMEPROP has been actively rationalizing its non-core assets (RM2.5b EBITDA 593 484 624 in PBT gains from FY15-18A land sales) and selling down its PBT 728 618 850 inventories. They are targeting more disposals, which are expected to Net Profit (NP) 640 420 607 generate more than RM2b worth of gains over the next 4-6 years. Core Net Profit 367 420 607 Completed inventory as of FY18 stood at RM836m at cost, of which Consensus(NP) N.A. 490 612 57% is from Alya and The Glades, which are high-end projects priced Earnings Revision N.A. 0% 0% >RM1m/unit. Management is taking active efforts to clear its Core EPS (sen) 5.4 6.2 8.9 inventories, which may involve margin squeeze as the preference is to Core EPS growth (%) -28% 113% 44% clear inventories for cashflow. Positively, the group has a low net NDPS (sen) 5.4 6.2 8.9 gearing of 0.18x. BV/Share (RM) 1.43 1.49 1.54 Core PER 21.9 19.1 13.2 FY19-20E CNP of RM420m-RM607m on the back of new property Price/BV (x) 0.8 0.8 0.8 sales of RM2.33–2.34b and expected land sale gains. FY19-20E Net Gearing (x) 0.2 0.2 0.2 1 dividend yields are expected to be at 2.1-3.0% . Net Dvd Yield (%) 4.2% 2.1% 3.0% Initiating coverage at MARKET PERFORM and TP of RM1.25 based on 61% discount to our FD SoP of RM3.24. Our applied discount is based on the average of our applied RNAV discount for IOIPG (68%) and SPSETIA (54%) being SIMEPROP’s direct comparisons. Risks include; (i) stronger/weaker-than-expected property sales, (ii) margin fluctuations, (iii) changes in real estate policies, and (iv) changes in lending environment.

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Sime Darby Property Bhd Initiating Coverage

01 October 2018

INVESTMENT MERITS

Note: For the purposes of this report, we will only be comparing SIMEPROP to UEMS, IOIPG, SPSETIA and ECOWLD i.e. ‘selected peers’ due to the size and profiling of a large township landbank owner. Also, our analysis and peer comparisons are based on last prices on 18/9/18 and SIMEPROP’s last price of RM1.18 while we have opted to use SIMEPROP’s FY19-20E forecasts as our 1-year and 2-year forward forecasts against its peer’s FY18-19E (exception is IOIPG which is also based on FY19-20E) i.e. we will not be using the annualized 6MFPEDec18 figures for peer comparisons. However, the full/side financial estimates tables and selected ratios (Note 1) are based on our report’s last price of RM1.18. Established township developer. Sime Darby Property (SIMEPROP) is an established property developer with a 40-year track record in the development of landed to strata properties, with well-known townships such as Taman Melawati, Subang Jaya and Bukit Jelutong. According to Frost & Sullivan, SIMEPROP has the largest land bank in Malaysia and it is also one of the largest property developers by revenue and scale of operations, with a footprint in the United Kingdom through SIMEPROP’s involvement in the development of the iconic Battersea Power Station in London. Its existing land banks are strategically connected to major highways and are located mainly within key growth areas and economic corridors from the central region of Klang Valley all the way to Negeri Sembilan and Johor in the south. It is the third largest developer in terms of market cap of RM8.0b and remaining GDV of RM137b. Property development and land sales constituted the biggest driver for the group at 89- 95% of revenue and 87-91% of gross profit for FY15-18A. The other segments like Property Investment, Hospitality and Concessions are relatively small drivers, whose cumulative contribution of only 9-15% of FY15-18A earnings. FY15-18A Segment Revenue FY15-18A Segment Gross Profit

Source: Company; Kenanga Research Largest landbank in town, but not the largest in market capitalisation. SIMEPROP was listed in Nov 2017 as part of the demerger of Sime Darby Berhad (SIME), which also spun off its Plantation division into Sime Darby Plantation Berhad. It is the largest developer at 20.6k ac, of which 12.1k ac are developable lands with the remaining 8.4k ac slated for future developments; note that this does include the 40% owned Battersea, UK project and the 60% owned Serenity Cove, Australia project. For the local developable lands (12.1k ac) and its two overseas projects (Serenity Cove, Battersea), the guided remaining gross GDV is RM82b and RM16b*, respectively. Management has not provided GDV guidance for the remaining 8.4k ac slated for future development, which we conservatively estimate at RM39b. This implies a total remaining GDV of RM137b. Additionally, note the additional option agreements for another 20.6k ac with its sister companies, SIME and SIMEPLT; if we add this, this would imply a whopping 41.2k ac land bank arsenal. However, in terms of market capitalisation, SIMEPROP is only the third largest listed developer at a market cap of RM8.0b, just behind SPSETIA (RM10.4b) and IOIPROP (RM8.9b). *Note: Based on effective stakes/levels. SIMEPROP Landbank Profile

Landbanks (ac) Remaining Overseas Developable Area Remaining GDV Projects, 88, 0% (ac) (RM'b) Developable Malaysia Projects (Subsidiaries) 12,147 82 Future Future Malaysia Projects Malaysia Prorjects (Subsidiaries) 8,430 39 (Subsidiaries), Developable 8,430, 41% Malaysia Overseas Projects* 48 16 Projects (Subsidiaries), Total Existing Landbanks 20,626 137 12,147, 59% Land Options 20,599 69 Total with Options 41,225 205

*Effective levels Source: Company, Kenanga Research

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Sime Darby Property Bhd Initiating Coverage

01 October 2018

SIMEPROP Local Landbank Profile – Subsidiaries

Source: Company, Kenanga Research

Comparison of Remaining GDV and Market Cap

Remaining GDV (RM'm) Market Cap (RM'b) 180,000 12.0

160,000 10.0 140,000

120,000 8.0

100,000 6.0

RM'm 80,000

60,000 4.0

40,000 2.0 20,000

- - SPSETIA IOIPG SIMEPROP UEMS ECOWLD SPSETIA IOIPG SIMEPROP UEMS ECOWLD

Source: Companies, Bloomberg, Kenanga Research Deep roots in Greater Klang Valley. Thanks to its plantation pedigree, 8.9k ac (73% of SIMEPROP’s developable land bank of 12k ac) is located within the Greater Klang Valley region, encompassing KL, Selangor and Negeri Sembilan. This corresponds to a remaining GDV of RM76.1b, or 93% of the group’s remaining GDV in its immediate developable area. As a township developer originating from plantation estate, SIMEPROP holds large (>1.0k acres) plots of developable land bank in upcoming areas such as Shah Alam (City of Elmina, including Elmina West, Denai Alam, Bukit Subang and Bukit Jelutong), Klang (Bandar Bukit Raja) and Sepang (Serenia City), with combined townships GDV of RM58.3b, which makes up 72% of its remaining developable GDV. This is critical for the company’s demand profile because c.50% of Malaysia’s residential transacted values takes place within Klang Valley. Remaining Developable GDV of Ongoing Developments – Subsidiaries Location Estimated GDV (RM'b) GDV Composition (%) Klang Valley 70.7 86.5% N. Sembilan 5.4 6.6% Johor 5.7 6.9% Total 81.7 100.0%

Source: Company, Kenanga Research Nurturing townships since 1976. SIMEPROP was established as a property player through the development of the Subang Jaya township which was launched in 1976 and granted Majlis Perbandaran (municipal) status in 1997. Other notable township developments in the Klang Valley include Taman Melawati (since 1972, Ara Damansara, Bukit Jelutong, City of Elmina, Putra Heights, Saujana Impian, and USJ Heights. Outside of Klang Valley, SIMEPROP’s township projects include Bandar Ainsdale and Nilai Impian in Negeri Sembilan, and Bandar University Pagoh in Johor. We believe township developers enjoy an advantage from: (i) more resilient demand from genuine buyers, including first-time home buyers and upgraders, (ii) long-term value creation opportunities over the lifespan of the township, compared to one-off developments, and (iii) strong following, which helps capture market share. Besides its established brand name as a township developer, we also note that the success of its townships are also highly dependent on their locations, which typically have good connectivity to major highways (refer to APPENDIX for details).

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Remaining Developable Landbank and GDV of SIMEPROP (Subsidiaries) Remaining Developable Area Township/Development Name Total Area (ac) (ac) Remaining GDV (RM'b) Niche/Integrated ALYA, Kuala Lumpur* 62 50.5 7.2 - Senada Residences Chemara Hills, Seremban 44 3.0 0.0 USJ Heights, Subang Jaya 375 11.1 0.2 SJ7, Subang Jaya 40 34.6 5.3 SJCC, Subang Jaya 30 28.1 3.6 KL East 160 50.8 2.2 Township City of Elmina: Elmina West, Shah Alam 2,661 2,512 15.4 City of Elmina: Elmina East, Shah Alam 1,089 583 2.5 City of Elmina: Denai Alam & Bukit Subang 1,250 144 1.0 Bandar Bukit Raja 2 & 3, Klang 2,820 2,665 11.5 Bandar Bukit Raja 1, Klang 1,513 161 1.2 Serenia City, Dengkil, Sepang 2,370 1,462 8.8 Putra Heights, Subang Jaya 1,796 77 3.4 Ara Damansara, Petaling Jaya* 693 80 6.7 - Oasis Corporate Park Bukit Jelutong, Shah Alam 2,205 160 1.2 Saujana Impian, Kajang 600 4 0.03 Taman Melawati, Ulu Klang 880 1 0.6 Nilai Impian 2, Nilai 546 426 3.1 Nilai Impian 1, Nilai 1,263 164 1.0 Bandar Ainsdale, Seremban 562 169 1.2 Planters' Haven, Nilai 250 84 0.1 Bandar Universiti Pagoh, Muar 4,099 3,262 5.5 Taman Pasir Putih, Pasir Gudang 356 16 0.2 Total Developable 25,664 12,147 81.7

Source: Company, Kenanga Research

Location Maps: Projects in Klang Valley

Source: Company

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Sime Darby Property Bhd Initiating Coverage

01 October 2018

Location Maps: Projects in Negeri Sembilan and Johor

Source: Company Right products, right price segments. Over Jul-18 to Dec-19, the group intends to launch RM3.5-4.5b worth of GDV (4-5k units), which will be largely driven by its township products in Greater Klang Valley, including; (i) double-storey terrace at Elmina West (EG4), (ii) double-storey terrace at Serenia City (A3), (iii) condominiums at Putra Heights (HT5T4), (iv) serviced apartments at SJCC, and (v) affordable apartments at Elmina West (Harmoni 1). Residentials will make up 76% of the launches, of which 54% will be priced between RM400-800k/unit, 31% at RM800k-1.2m/unit, 13% at less than RM400k/unit while the remaining are priced above RM1.2m/unit. Commercial and industrial will make up 6% and 18% of the launch targets, respectively.

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Note that the group has set a sales target of RM1.0b for 6MFPE18E (Jul-Dec 2018). We believe the target is achievable considering that bulk of their products are located within Klang Valley and are largely township products priced below RM800k/unit while we are cognisant that demand for new industrial spaces within Greater Klang Valley is still resilient. Jul-18 to Dec-19: Target Launches (Type / Location) Jul'18-Dec'19 Breakdown of Target Jul'18-Dec'19 Breakdown of Target Launches by Type Launches by Location

Residential Industrial Commercial Along Guthrie Corridor Greater Klang Valley Klang Negeri Sembilan Johor

8% 6% 22% 17% 18%

14% 76% 39%

Source: Company, Kenanga Research

FY18: Target Launches (Type / Location) FY18 Breakdown of Launches by Type FY18 Breakdown of Launches by Location

Residential Industrial Commercial Along Guthrie Corridor Greater Klang Valley Klang Negeri Sembilan Johor

3% 1% 11%

6% 12% 42%

86% 39%

Source: Company, Kenanga Research

FY18 Launch Breakdown by Price (Residential) Jun-18 to Dec-19 Launch Breakdown by Price (Res)

FY18 Breakdown of Launches by Price Jul'18-Dec'19 Breakdown of Target Launches by Price (Residential) (Residential) RSKU (RM1.2m RM800k-RM1.2m

12% 17% 13% 31%

30% 2% 41% 54%

Source: Company, Kenanga Research Pushing into the Industrial segment. We believe SIMEPROP is well positioned to capitalize on the Industrial segment which is seeing better demand-supply dynamics, with a focus on light industrial and logistics businesses. Its unique advantages include; (i) strategic and sizable land bank around the Greater Klang Valley region, (ii) cheaper land cost from converted agricultural land and, (iii) relatively robust demand for industrial hubs within close proximity to key transportation hubs. So far, 461 ac of land (c. RM5.1b GDV) has been identified for industrial development. While most will be for sale, some 253 ac in Elmina East, Bandar Bukit Raja 1 & 2 and Serenia City will be used for industrial build-to-suit facilities, which will be retained as recurring income assets. As mentioned earlier, 18% of the targeted Jul-2018 to Dec-2019 launches will be industrials. Of particular interest is the 2Q18 announcement of its 50:50 joint venture with Mitsui & Co (Mitsui) to develop and lease built- to-suit industrial facilities on a 39 ac site in Bandar Bukit Raja 2, with an estimated GDV of RM530m. The objective of the JV is to leverage on Mitsui’s expertise in designing logistics facilities while retaining the industrial assets as a recurring income stream. The company is looking at more strategic partnerships for its industrial parks development on 253 ac earmarked land in

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01 October 2018

Elmina East, Bandar Bukit Raja and Serenia City. We gather that management is actively looking for more strategic partnerships similar to that with Mitsui to develop and operate more industrial parks. While we have yet to factor for other new strategic partnerships with regards to the industrial parks, we are positive on this development as we see it as part of an initiative to monetise their land banks more aggressively while tapping onto a more demand-resilient segment. Exceptionally long-term development horizon. As mentioned earlier, the group has another 8.4k ac which has no immediate development plans as yet; we estimate a potential GDV of RM39.0b for these land banks which we believe will be developed over the next 10-20 years. Our estimates are based on a conservative GDV/ac assumption which we derived from existing GDV/ac values of neighbouring townships/developments at either on par or a discount to the current GDV/ac values. We are aware that these estimates could be extremely conservative at this juncture, and may revise it upwards once more concrete plans are made known. Estimated GDV of Future Development Future Development Total Area (ac) Stake (%) Assumed GDV/ac. Implied GDV (RM'm) (RM'b) Kota Elmina 1,540 100% 7.6 11.6 Lagong 1,552 100% 7.2 11.2 MVV 3,196 100% 3.0 9.7 Jerai Estate, Kedah 1,568 100% 3.0 4.8 Mostyn Estate, Sabah 144 100% 3.0 0.4 Remaining area 430 100% 3.0 1.3 Est. Future Development 8,430 39.0

Source: Company, Kenanga Research Huge future pipeline of township land banks from sister companies. Recall that prior to its spinoff, SIMEPROP entered into call option agreements with both SIMEPLT and SIME to purchase land parcels totalling 20.6k ac located across Peninsular Malaysia. The purchase price of the land would be determined by an independent valuer, subject to terms, including shareholders’ approval, if applicable. We gather that the bulk of the option area (especially from SIMEPLT) is existing agricultural area with development potential. With its extensive current land bank and potential growth via options, we believe SIMEPROP will have minimal need for external land purchases. We estimate the potential GDV of the optioned land bank could be worth at least RM68.5b, based on extremely conservative assumptions derived from a discount to its neighbouring townships/developments’ GDV/ac values. However, investors should note that value of these land banks can only be unlocked over decades. Estimated GDV of Land Options Land Options Total Area (ac) Stake (%) Assumed GDV/ac. Implied GDV (RM'm) (RM'b) SIME - MVV land, N. Sembilan 8,793 100% 3.0 26.6 SIMEPLT - Kulai A & Kulai B estate, Johor 1,862 100% 3.0 5.6 3,186 100% 3.0 9.7 SIMEPLT - Sepang estate, Selangor 2,000 100% 4.0 8.0 SIMEPLT - Sungai Kapar estate, Selangor 993 100% 4.0 4.0 SIMEPLT - West estate, Carey Island, Selangor 2,000 100% 4.0 8.0 SIMEPLT - Lothian estate, Selangor 485 100% 4.0 1.9 SIMEPLT - Byram estate - Pulau Pinang 864 100% 4.0 3.5 SIMEPLT - Ainsdale West estate, N. Sembilan 268 100% 4.0 1.1 SIMEPLT - Bukit Selarong estate, Kedah 148 100% 1.0 0.1 Estimated GDV of Land Options 20,599 68.5

Source: Company, Kenanga Research Developing recurring income streams. In its Investment segment and Hospitality & Leisure (Hospitality) segment, SIMEPROP holds a number of assets with recurring income stream potential. Notable assets include the Melawati Mall, Sime Darby Convention Center, and TPC KL (formerly Kuala Lumpur Golf & Country Club). However, we note that earnings in both segments have been volatile due to disposals in recent years and the relatively early stage of development for some assets such as Melawati Mall. Income from this segment makes up 6% of Revenue and 7% of Gross Profit based on average FY17- 18A performance. As such, we expect flat earnings or small losses in the non-development segments until these income streams stabilise. However, as mentioned earlier, the group is targeting to grow its recurring income streams via property investments (including industrial parks) and hopes that this segment will contribute 10% to the Group PBIT by FY23 (FY18A: 7.6%).

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Branching out with Pagoh Education Hub (PEH). Outside of Klang Valley, SIMEPROP’s landbanks are concentrated in the northern and southern states in Peninsular Malaysia, including Penang, Kedah and Johor. Presently, its largest ongoing development in this area is in Bandar University Pagoh (4,099 acres) where its Pagoh Education Hub (506 acres) combines 4 educational institutions (UTHM, UTM, IIUM and PTSN) with a combined maximum student capacity of 10.8k students (vs. 7,200 students currently). PEH is the first integrated multi-varsity education hub within Bandar University Pagoh and is a 60:40 concession agreement (CA) between Sime Darby Property and Tunas Selatan Construction. The Group has strategically decided to maintain PEH post completing construction in 2017 as it provides c.RM30m PAT p.a. on average (based on its effective stake) of stable recurring profits over the next 19 years. For the longer term, Pagoh was a floated spot for a High- Speed Rail station previously, which should bode well for future development of the area. Note that construction of the HSR has been postponed to May-2020, and is expected to start by 2031 (vs. 2026 previously). We believe the development integrates key elements of SIMEPROP’s strategies, with industrial development launches ahead as well as ongoing facilities management providing a recurring income element. Bandar University Pagoh – Master Plan

Source: Company Battersea Power Station (BPS), part of the evergreen London. The project land was acquired by the Malaysia consortium (comprised SIMEPROP: SPSETIA: Employees Provident Fund (EPF) on a 40:40:20 JV basis, respectively) in 2012 for GBP400m. BPS is part of the Nine Elms regeneration area which is earmarked to be a prime residential and business district. The site is located on the South Bank of the River Thames in the vicinity of Westminster and is arguably one of the largest regeneration projects in Central London. The total gross GDV of BPS is GBP9.3b (c. RM52b) which spans over 41.7 ac to be developed over 7 phases over a 10-15 year period; the remaining gross GDV is now at RM36.4b (23 ac). The planned development consists of 3,696 private residential units, up to 636 affordable residential units and c.2.5m sf of commercial areas. The project will also benefit from the Northern Line Extension which is targeted for completion in 2020 – note that the tunnelling work has been completed as the boring machines has broken through at Kennington. The project is expected to create some 15k new jobs upon completion. Note that the US Embassy, Nine Elms was completed and is fully operational this year. Circus West (Phase 1) has already been completed and delivered. Currently, we are waiting for the completion of The Power Station residential (Phase 2) and The Electric Boulevard (Phase 3a) which should be completed in FY20-21, implying that we are expecting lumpy associate project recognitions in these years, as UK projects see revenue recognition and progress billings collections on completion. The take-up rates for Phase 1 and 2 are at 99% and 92%, respectively, but Phase 3a is softer at c. 70%. Phase 3b is earmarked for launch in FY19 but we believe this could be pushed towards 2020 to coincide with the completion of the Northern Line Extension. This will enable better pricing power. Additionally, it would be prudent to hold back new launches pending the outcome of the scheduled BREXIT in 2019. Battersea now has a remaining GDV of RM9.0b. Note that for the commercial spaces within Phase 1–3a, the smaller spaces will be kept for investment property purposes while sizeable spaces like The Power Station commercial (Phase 2) is earmarked for sale.

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Location Maps: Battersea Power Station in London

Source: Company

Location Maps: Battersea Power Station in London

Source: Company Exploring sale of Battersea Phase 2 commercial portion to PNB and EPF. In early 2018, the group announced that the Battersea consortium had entered into Heads of Terms (HoT) with Permodalan National Bhd (PNB) and EPF to explore the terms of a potential sale on the commercial assets currently being developed within Phase 2 of the Battersea Power Station project to a JV company to be formed between PNB and EPF. Initial news reports indicated that the deal could be valued at approximately GBP1.61b (RM8.80b) although the final value is yet to be released. The HoT is non-binding with an exclusivity period to conclude the proposal then by 30-Apr-2018, but it has since been extended to 30-Sep-2018 or a date that can be mutually agreed on. Note that the office space at the Battersea Power Station (c. 0.5m sf) should be completed by Jul-2018 and will be leased to Apple while residential pre-sales has achieved over 90% take-up rate. Anticipating the sale. We believe this deal is critical as the Battersea consortium would prefer to release capital from sizeable investment properties to fund the future phases of Battersea development, given that collection of billings is typically upon completion. While we note that this is a 40% associate project for SIMEPROP, there will not be material impact on group net gearing, especially if the capital is ploughed back for future phases. However, it will help to shore up headline sales for the group once the deal is completed (2019-20), boosting associate profit contribution. Failing which, there would be less working capital to fund the future developments of Battersea, requiring each consortium member to inject fresh capital into Battersea, i.e. higher odds of a future cash-call. Positively, we note that SIMEPROP is in a very light balance sheet position and could potentially gear up to meet such shortfall. We gather that the Battersea consortium targets to sign the disposal of this commercial portion by 30- Sep-2018. We have yet to build this into our estimates and will only do so upon confirmation; since the project is already underway, we expect contributions by FY20-21 if the completion method is being used to recognize billings.

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Battersea Project – Phases & Details Phase 1 Phase 2 Phase 3 Name of Phase Circus West The Power Station The Electric Boulevard Phase 3b (Phase 3a) Type Apartments Apartments Apartments Apartments No. of Residential units 865 253 539 824 Take-up Rate 99% 92% c. 70% Launch 1Q13 May-14 Oct-14 target 2019 Completion 100% 4Q20 2021 TBD Residential ASP (GBP psf) 1,121 2,372 1,674 TBD

Residential GDV (GBP'm) 0.92 2.31 1.16 TBD Residential GDV (RM'b) 5.10 12.90 6.50 TBD Profit Recognition (RM'b) 0.63 n.a. n.a. n.a. Profit Recognition (RM'b) - at 40% 0.25 n.a. n.a. n.a. stake

Commercial Space ('m sf) 0.10 0.92 0.30 TBD Hotel (rooms) n.a. n.a. 167 TBD

Source: Company Solid balance sheet post restructuring. The 2017 demerger of SIME allowed substantial restructuring of SIMEPROP’s balance sheet. Its FY18A net gearing stood at 0.18x which is the lowest amongst its selected peers which carries an average of 0.43x and also well below our maximum comfort levels of 0.5-0.6x. The solid balance sheet position should allow for further expansion of its landbank, which is readily accessible through its options agreements with both SIME and SIMEPLT for assorted parcels spanning 20.6k acres spread over five states in Peninsular Malaysia. Based on management’s comfortable net gearing level at 0.3x, we calculate that SIMEPROP could raise up to RM1.2b for expansion or to fund working capital requirements of Battersea if the commercial portion sale does not take place. Other than its option agreements and its momentum of realization of assets, we see no reason for the group to acquire more external land bank unless there are strategic reasons. We gather that capex for the Investment segment should be largely limited to the KL East Gallery, which is relatively small for the group. Active efforts to offload non-core assets and monetize its landbanks via strategic JVs. Developers with large landbanks are also prone to ‘value traps’ from an investor’s perspective. While a developer may have deep value, the quantum of asset realization, either via development, land sales or land JV arrangements, is the key determinant of a developer’s valuations. The group has a target disposal of c1,700ac and three hospitality assets, which are expected to generate more than RM2b worth of gains, which we believe will take place over the next 4-6 years. So far, over FY15-18A, SIMEPROP has successfully disposed of quite a number of its non-core assets/landbanks for a total of RM2.5b in PBT gains (both subsidiary and associate land banks) or an average of RM0.6b p.a. For now, we are conservatively estimating RM0.6b in PBT gains for 6MFPE18E to FY20E. The group is also open to land JVs and sale of its land banks to strategic partners if there are synergistic values to be created. At the end, a township developer requires a myriad of liveable content to drive the population growth in its townships, which may require other skill sets which SIMEPROP may not have. Note that the management also have plans to dispose the overseas Leisure and Hospitality assets in Vietnam, Australia and Singapore. Gains from Non-Core Assets/Landbanks Disposals

1,000.0 Effective PBT gains on disposals (RM'm) 900.0

800.0

700.0

600.0

500.0

400.0

300.0

200.0

100.0

0.0 FY2015 FY2016 FY2017 FY2018 2HCY18 FY2019 FY2020

Source: Company, Kenanga Research

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Sime Darby Property Bhd Initiating Coverage

01 October 2018

Working to pare down inventory. Completed inventory as of FY18 stood at 648 units or RM836m at cost, of which 57% of it are from Alya and The Glades, which are mainly high-end projects priced >RM1m/unit while the remaining are from KL East, Taman Melawati, Chemara East, Planters’ Haven, Elmina West and others. We gather that management is taking active efforts to clear inventories, which may involve some margin squeeze as management prefers to clear inventories to release cash flows. In terms of on-going launches, the group has RM1.6b (at cost) which has not been sold yet; 31% is from Oasis Ara Damansara and Bandar Ainsdale while the remaining are from other projects (Elmina, KL East, Tmn Melawati, Bukit Jelutong, Denai Alam). Going forward, while we gather that management is working towards trimming its inventory overhang, we would not rule out the risk of further write-downs in certain higher value projects given the slower pace of the property market currently; but based on recent guidance, we are unlikely to see any major inventory write-downs for the next 6-12 months; recall that in 4Q17, SIMEPROP had done a provision on its unsold stocks amounting to RM149m, which was mainly from the high-end residential inventories considering that the average cost per unit of each inventory is >RM1m/unit. Note that the group’s inventory in the balance sheet does include property development cost and landbanks (refer below for breakdown). Inventory (Property Units) Breakdown (RM’m) Inventory (Landbank Related) Breakdown (RM’m)

Launched Completed Current Non-current 3000 5,000

2500 4,000

2000 836 1,897 799 3,000 1,227 1500 RM"m RM'm 2,000 1000 1614 2,385 2,431 1393 1,000 500

0 - FY17 FY18 FY17 FY18

Source: Company, Kenanga Research

Completed Inventory (Units) Completed Inventory (RM’m)

Completed Inventory (Units) Completed Inventory (RM'm)

Elmina West 3% Others Alya KL 13% 16% The Glades Planters' Haven Others 6% 34% 6% Alya KL KL East Chemara East 45% 8% 6%

Tmn. Melawati Tmn. Melawati 7% 8% The Elmina West Glades 8% KL East 12% Chemara East 8% Planters' Haven 9% 11%

Source: Company; Kenanga Research

Ongoing Launched Inventory (RM’m)

Ongoing Launched Inventory (RM'm)

Pagoh 3% Others 11% Serenia City 3% Oasis Ara D'sara 16% SJCC 4%

Alya KL 4% Bdr. Ainsdale 15%

B. Jelutong & Denai Alam 8% Ara D'sara Elmina 10% 14%

KL East & Tmn. Melawati 12%

Source: Company; Kenanga Research

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Sime Darby Property Bhd Initiating Coverage

01 October 2018

OUTLOOK Company Flagship City of Elmina development. SIMEPROP’s marque township projects in Klang Valley - Elmina (Shah Alam) and Bukit Raja (Klang) – are especially well connected, which bodes well for demand as shown in encouraging uptakes in launches to date. The flagship City of Elmina development spans 6.5k acres, including several townships namely Elmina West (2,661 acres), Elmina East (1,089 acres), Denai Alam and Bukit Subang (1,250 acres combined), as well as the upcoming Kota Elmina (1,540 acres). This development boasts of impressive connectivity to several highways, including the North-South Expressway, Guthrie Corridor Expressway, NKVE, LATAR and the upcoming DASH. This area is also close to existing township developments such as Setia Alam, Gamuda Gardens and SIMEPROP’s own Ara Damansara, Bukit Jelutong and Subang Jaya townships. City of Elmina Development Area

Source: Company Long-term plans in Greater KL. Outside of Selangor, SIMEPROP also holds substantial land bank in Negeri Sembilan, with two main township developments namely Bandar Ainsdale (562 acres) and Nilai Impian 1 & 2 (1,809 acres combined). Despite the risks involved in the early stages of mega infrastructure projects such as the HSR, management remains optimistic on the long-term prospects of the area as other connectivity projects such as the Nilai-Labu-Enstek Expressway have already begun construction work, and SIMEPROP already holds a sizable parcel of landbank (Parcel A; 3,196 acres) stretching alongside the North-South Expressway. Over the long-run, SIMEPROP also holds options for further land bank expansion surrounding Seremban and Port Dickson, which we will elaborate below. SIMEPROP, SIMEPLT and SIME Land Bank in Negeri Sembilan

Source: Company

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Sime Darby Property Bhd Initiating Coverage

01 October 2018

Strong potential in Industrial developments. Aside from the JV with Mitsui in Bukit Raja, we understand that SIMEPROP is also exploring other industrial development projects. We observe that the southern region of Greater Klang Valley is a key part of SIMEPROP’s industrial development plans with an existing township, Serenia City (2,370 acres), envisioned as an economic and transport hub in Sepang with its close proximity to KLIA and several highways. Its 197-acre Industrial precinct offers Built- To-Suit products in a similar vein to the Bukit Raja business park JV with Mitsui. In the longer term, Parcel A (Negeri Sembilan) is also expected to provide space for industrial development expanding on the already well-developed Nilai and Senawang industrial zones. Further south, SIMEPROP expects to launch new industrial projects in its Bandar University Pagoh integrated township, which is well located along the North-South Expressway and squarely between Singapore and Kuala Lumpur. Serenia City Master Plan

Source: Company Options available to double SIMEPROP’s acreage. Prior to its listing, SIMEPROP entered into multiple call option agreements with its sister companies SIME and SIMEPLT for the right to acquire 8.8k and 11.8k acres, respectively, at its future market value. These land bank options added up to 20.6k acres which, if fully exercised, would almost double their current land bank size to 41.3k acres. All options are valid for 5 years from 1 Dec 2017 and extendable by a 3-year period which we expect could see continued extensions. Note that the options permit exercise of partial segments of the related land parcels. This provides great flexibility to SIMEPROP for sustainable land bank expansion at fair market value, without incurring additional holding costs than if the company were forced to exercise the full option at one go. Land Options Available to SIMEPROP

Source: Company

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Sime Darby Property Bhd Initiating Coverage

01 October 2018

Residential outlook. Earnings and sales are still uninspiring, while margin compression risk still looms due to clearing of inventories with more marketing efforts. Our universe’s total sales/earnings trajectories are expected to be at -5% / -14% YoY in FY18E/19E and +2% / +11% YoY in FY19E/20E, respectively. Our universe’s: (i) average unbilled sales are at 1.1 years or unchanged from last quarter), and (ii) average net gearing is at 0.3x or at healthy levels. Valuations remain subdued with our universe’s RNAV discounts mostly at -1.0SD to trough levels with our sector average level now at 63.9% or historical trough level (vs. last quarter of 63.4%). Similarly, Fwd. PBV-wise, most are at or close to trough levels; exceptions are SUNWAY and AMVERTON, which are at historical mean levels. Fwd. PER-wise, we do not have a conclusive trend due to the volatility of observed earnings. We believe more clarity is needed on the new affordable housing policy, including; (i) the national affordable housing database, (ii) the definition of ‘affordable housing’ which will serve as an indicator on whether listed developers are able to participate in this segment actively while we note that most of the players in our coverage are able to cater for RM400k- 1m/unit housing products, (iii) easing of lending requirements for first-time home buyers and, (iv) the new ruling government’s promise to deliver 1.0m affordable homes over its two terms or 100k units p.a. over the next 10 years versus Malaysia’s average residential transaction of 198.9k units p.a. over CY16-17. While this may bode well for the nation’s aim to increase home ownerships, it could mean more competition for players under our coverage. We expect most developers’ share prices to range bound at current levels pending the Budget-2019 announcement (2-Nov) or if there are earlier announcements on housing policies or lending requirements. Although valuations look tempting at this juncture, we see no strong earnings or sales catalysts, which will help in ROE recovery, which have dropped to record low levels. We also highlight that in general, margins for affordable housings are challenging. Reiterate NEUTRAL on Developers.

Malaysia Residential Absorption Rate = DD / ES + IS Residential Housing Starts vs. Transactions

6.0% Residential Transactions (Units) Residential Starts (Units) 300,000 5.5%

5.0% 250,000

4.5% 200,000 4.0%

3.5% 150,000

3.0% 100,000 2.5%

<---Less (Absorption =<---Less More---> DD/SS) (Absorption 2.0% 50,000

Msia: RES: Annual Absorption Rate (x) 0 10-yr Average: Msia: RES: Annual Absorption Rate (x) 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: NAPIC, CEIC, Kenanga Research

Average Residential Transacted Prices Malaysia Residential Demand Projections 700,000

Malaysia: 600,000 Average House Price Transacted (RM/unit) 500,000 Klang Valley: Average House 400,000 Price Transacted (RM/unit) 300,000 Johor: Average House Price 200,000 Transacted (RM/unit)

100,000 Penang: Average House Price Transacted 0 (RM/unit) Jul-12 Jul-17 Jan-10 Jan-15 Jun-10 Jun-15 Oct-13 Apr-11 Apr-16 Sep-11 Feb-12 Sep-16 Feb-17 Dec-12 Dec-17 Aug-09 Aug-14 Nov-10 Nov-15 Mar-09 Mar-14 May-13 Source: NAPIC, CEIC, Kenanga Research

Low incoming supply for industrial demand may help improve absorption rates. Industrial demand in terms of units in the Klang Valley has continued its steady decline since 2011 to 2017 (-49%), but sales value has been rather flattish during the same period (-2.5%) due to higher prices per unit for industrial property (+93%). YoY, there has been a slight uptick for industrial units (+15%) in the Klang Valley alone, mostly from the Selangor area. With incoming supply at 14-year lows, we reckon this would help improve absorption rates going forward. Demand is largely driven by logistics and light industries.

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Sime Darby Property Bhd Initiating Coverage

01 October 2018

Industrial Incoming Supply Industrial Existing Supply Industrial Stock: Incoming Supply Industrial Stock: Existing Stock 22000 50000

20000

18000 45000

16000 40000 14000 Units 12000 Klang Valley Units Klang Valley 35000 10000

8000 30000 6000

4000 25000

Source: NAPIC, CEIC, Kenanga Research

Industrial Sales Value Industrial Sales (Units) Industrial Sales: Value Industrial Sales: Units 4500 8500 8000 7500 4000 7000 6500 3500 6000 5500 5000 3000 Units RM'm 4500 Klang Valley Klang Valley 4000 2500 3500 3000 2500 2000 2000

1500 1500

Source: NAPIC, CEIC, Kenanga Research

Industrial Sales Price per unit Klang Valley Industrial Absorption Rate = DD / ES + IS Industrial Sales: Price per Unit 3.0% 4.00 2.5% 3.50 2.0% 3.00

2.50 1.5% 2.00

RM'm Klang Valley 1.50 1.0% 1.00 0.5% 0.50 <---Less (Absorption = DD/SS) ---> <---LessMore DD/SS) = (Absorption 0.00 0.0%

Source: NAPIC, CEIC, Kenanga Research Softer market sentiments in UK post Brexit talks. The London property market slowed after the European Union (EU) referendum in June 2016 while buyers’ sentiment was dampened as a result of uncertainties arising from the Brexit talks between the UK and the EU. However, sales in 2017 were higher than the annual sales from 2009 to 2012, underpinned by the Build-to-Rent (BTR) sector and the UK Government’s Help-to-Buy (HTB) schemes. According to a recent research report by Savills Research (Prime Rental Rents, July 2018), prime rents across the capital have fallen by 2.7%, with a fall of 1.5% in the prime markets of the commuter belt. This is the 10th consecutive quarter of weaker rental market outlook for prime UK area. According to the report, this is owing to the high supply across pockets of the market, limiting rental growth. However, outer prime London rental market faring slightly better than prime central London with markets beyond the central district seeing smaller rental corrections at 1.7% YoY, with drops ranging from 1.0% in prime North and East London (covering markets such as Islington and Canary Wharf) to larger fall of 2.2% across South West London – stretching from Clapham to Richmond.

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Sime Darby Property Bhd Initiating Coverage

01 October 2018

RISKS Increased competition in affordable housing. With most of its launches focused on landed residential or affordable housing, we expect demand to be relatively resilient. However, with the increasing incoming competition in the affordable housing space. this could result in weaker margins or slower take-up rates for the company in the case of an over-supply of such products. Slow realisation of assets. SIMEPROP’s land bank is the largest among listed developers. However, its sheer size means that developing its land bank fully will take years, if not decades. Additionally, legacy projects and older inventory may take longer to be fully sold and could potentially result in future provisions and additional upkeep costs. The slower realisation of assets would be reflected in additional land holding cost and a larger discount to RNAV compared to other asset-light developers. Sector and macro risks. This includes overall property down-cycles, tightening of banking liquidity, sharp interest rate hikes, negative real estate policies, global economic slow-downs, etc. economic uncertainties or a global slowdown contagion effect may slow down demand significantly. This will have negative implications on cash flows for developers with medium-to-long term integrated projects (e.g. integrated commercial projects, overseas projects which can only see earnings recognition upon completion). SIMEPROP will be sensitive to any changes to the Klang Valley and Johor landscapes as 93% of its remaining GDV is concentrated in these regions. Property developers are also sensitive to economic or geopolitical changes. Additionally, given its associate stake in Battersea, sector/macro risks in the UK could also affect this earnings driver. FINANCIAL ANALYSIS Estimating FY19-20E CNP of RM420-607m on the back of new property sales of RM2.33–2.34b. Note that the company has changed its FYE to 31-Dec, starting this year. Hence, the remaining part of CY18 will be known as 6MFPE18E. We also include its land sales as part of its core profit due to the regularity of its land sales. For 6MFPE18E, we estimate CNP of RM197m on the back of RM0.92b sales vs. management’s target of RM1.00b (refer to above sections for details on launches). We also built in land sales of RM100m, RM200m and RM300m in 6MFPE18E, FY19E and FY20E, respectively (refer to above section for details). As for its other non-development/land segments, we expect flattish earnings trajectory which constitute 12-16% of group gross profit. Overall, we expect group gross margins of 31-33% over the forecast periods. Modest dividend yield. SIMEPROP has committed to a 20% dividend pay-out policy at its listing. We do not find comparison within the sector, as there is no clear trend in pay-out of dividend amongst the big-players as it ranges between 0%-60% of core earnings, while some have no firm policy. We also note that developers like SPSETIA have Dividend Reinvestment Plans (DRP) in place. Nevertheless, we believe SIMEPROP should have no issue paying dividends above its policy rate given its positive free cash flows level and we also take cue from its pre-demerger practice where SIME usually pays out 40-50% of earnings. We conservatively estimate a 40% dividend pay-out ratio, compared to the 53% pay-out of reported earnings in FY18, implying FY19-20E dividend yields of 2.1-3.0%1. In terms of DRP, we gather that management is unlikely to implement this until earnings growth is enough to offset the dilution effect arising from DRPs. SIMEPROP Development Sales SIMEPROP Revenue

Development Sales Sales growth (%) 2500 200%

2000 150% 100% 1500 50% 1000 0% 500 -50% 0 -100%

Source: Company; Kenanga Research

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Sime Darby Property Bhd Initiating Coverage

01 October 2018

SIMEPROP Gross Profit SIMEPROP NP & CNP

Source: Company; Kenanga Research

Dividend and Balance Sheet Position

Source: Company; Kenanga Research PEER’S COMPARISON Selected peers. In our opinion, SIMEPROP should be compared against developers like IOIPG, ECOWLD, SPSETIA and UEMS due to market capitalisation and landbank/GDV size while they also have large tracts of township land banks, strong branding and market leadership qualities. Out of the selected peers, IOIPG and SPSETIA are the more direct comparisons while we think that the others are less comparable to SIMEPROP due to the following reasons; (i) UEMS’ land banks are mainly in Johor, (ii) ECOWLD’s remaining GDV is below RM100b unlike the others which have remaining GDV well above the RM100b mark. Nonetheless, we still utilize these peers as they are still considered sizeable developers. GDV/Market cap ratio suggests more room for market cap growth. SIMEPROP’s GDV/market cap is at 17.0x vs. its selected peer average of 21.8x. However, we note that against direct peers like IOIPG and SPSETIA, which have ratios of 15.9x and 15.0x, respectively, SIMEPROP’s ratio is higher suggesting that the gap should narrow over time, i.e. more room for SIMEPROP’s market cap growth. However, this is subject to the speed and quality of its asset realizations. We note that SIMEPROP’s yearly property sales targets are slightly higher than that of IOIPG but much lower than SPSETIA, although sales growth trajectories are all largely flattish. Development margins boosted by land sale gains. SIMEPROP’s average CY17-18A GP margin of 34% is close to its selected peers’ average of 33%; but we note that both UEMS and SIMEPROP’s earnings were largely beefed up by land sales, which carry GP margins of 60-90%, implying that development margins were quite thin. Management cited that they are continuing to focus on cost and operational efficiencies, including reducing overhead costs. Based on our analysis, SIMEPROP has the highest overheads exposure (16% of FY17/18A revenue) vs. its selected peers (13%-15%). Light net gearing but overall industry ROE improvement required. In terms of average FY17/18A-FY18/19E ROE, SIMEPROP is at 5.4% or lower when compared to its selected peers; average of 4.8%. However, SIMEPROP’s net gearing of 0.18x (average FY17/18A-FY18/19E) is the lowest amongst its peers’ average of 0.43x. Generally, we prefer that developers net gearing remains below our comfort threshold of 0.5-0.6x; the odds of cash-calls are higher once net gearing goes above that threshold, particularly if expansion is needed or for working capital requirements. Based on the average ROE-net gearing frontier of the selected peers (using 1–year forward estimates), SIMEPROP’s FY19E ROE should be at 4.4% which is quite

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01 October 2018

close to our FY19E estimates of 4.2% given its current net gearing levels. However, we qualify that in general, most developers, including SIMEPROP, are experiencing historically low ROEs amidst the current challenging landscape compared to the hey- days when ROEs were in the low to mid-teens; for valuations to re-rate, we believe ROEs need to recover to healthier levels. Comparison of GDV/Market Cap (x)

Market Cap (RM'b) 12.0 35.0 GDV/Market Cap (x)

10.0 30.0 25.0 8.0 20.0 6.0 15.0 4.0 10.0 2.0 5.0

- 0.0 SPSETIA IOIPG SIMEPROP UEMS ECOWLD UEMS ECOWLD SIMEPROP IOIPG SPSETIA Average Source: Companies, Bloomberg, Kenanga Research

Comparisons of Sales Trends

Sales Trends Sales Trends YoY Chg 6000 40.0%

5000 30.0%

4000 20.0%

3000 10.0% RM'm 2000 0.0% SPSETIA IOIPG UEMS ECOWLD SIMEPROP 1000 -10.0%

0 -20.0% SPSETIA IOIPG UEMS ECOWLD SIMEPROP -30.0% FY16/17A FY17/18A FY18/19E FY19/20E FY17/18A FY18/19E FY19/20E

Source: Companies, Kenanga Research

Gross Profit Margin Comparison COS & Overheads Analysis

60.0% COS : Revenue Other Fixed Exp : Revenue FY16/17A GP Margin FY17/18A GP Margin 100%

50.0% 90% 14% 16% 80% 15% 13% 40.0% 70%

60%

30.0% 50% 15%

40% 78% 77% 68% 72% 20.0% 30%

20% 42%

10.0% 10%

0% 0.0% FY17/18A FY16/17A FY16/17A FY16/17A FY17/18A SPSETIA IOIPG UEMS ECOWLD SIMEPROP IOIPG SPSETIA UEMS ECOWLD SIMEPROP

Source: Company, Kenanga Research

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Sime Darby Property Bhd Initiating Coverage

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ROE Comparison Net Gearing Comparisons

12.00 0.80 FY16/17A ROE % FY17/18A ROE % FY17/18A Net Gearing (x) FY18/19E Net Gearing (x) 0.70 10.00 0.60 8.00 0.50

6.00 0.40

0.30 4.00 0.20 2.00 0.10

0.00 0.00 SPSETIA IOIPG UEMS ECOWLD SIMEPROP SPSETIA IOIPG UEMS ECOWLD SIMEPROP

Source: Companies, Kenanga Research

SIMEPROP: Net Gearing vs. ROE ROE Comparisons: KLPRP vs. KLFIN vs. KLCON

5.5 SPSETIA KLPRP ROE % KLFIN ROE % KLCON ROE % 18.0

5.0 16.0

14.0 UEMS 4.5 12.0

10.0

ROE % ROE 4.0 8.0 SIMEPROP ECOWLD 6.0

3.5 4.0 IOIPG 2.0

3.0 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 CY12 CY13 CY14 CY15 CY16 CY17 CY18E CY19E Net Gearing (x)

Source: Companies, Kenanga Research Unbilled sales visibility is under 1-year. SIMEPROP unbilled sales of RM2.0b (FY18) which provides 0.9-year visibility is on par with selected peers; but we generally prefer unbilled sales to be above one year. ECOWLD’s visibility is higher at 1.6 years as earnings are still in a normalization process while SPSETIA has its Australian projects, which are recognized on a completion basis, which SIMEPROP does not have. However, its visibility is much better than IOIPG. Highest Central region exposure, in terms of remaining GDV composition. Demand in Greater Klang Valley is more resilient than other states in Malaysia and we prefer developers with such exposure. In terms of Central region exposure, SIMEPROP is the highest at 64%, followed by SPSETIA and ECOWLD. We also like sizeable overseas exposure in countries like UK and Australia, which enables these large developers to achieve higher or maintain current sales momentum in light of saturated local market. Unbilled Sales Visibility Comparison Remaining GDV Composition

Unbilled Sales Visibility (yrs) Remaining GDV Composition 1.8 90%

1.6 80%

1.4 70%

1.2 60% 50% 1.0 40% 0.8 30% 0.6 20%

0.4 10%

0.2 0% SIMEPROP SPSETIA ECOWLD IOIPG UEMS 0.0 ECOWLD SPSETIA SIMEPROP UEMS IOIPG Central Southern Northern Eastern Overseas

Source: Companies, Kenanga Research Dividend yield is on par with selected peer’s average. Only SPSETIA and SIMEPROP have dividend policies, of at least 50% and 20% of earnings, respectively, while the rest do not have official policies. We estimate SIMEPROP’s FY19E dividend yield of 2.1% which is on par with its selected peer’s average of 2.5%; but note that the peers’ range of 0%-5.8% is wide. We also believe that PER and PBV comparisons are not appropriate for sizeable developers and are more applicable when compared to their own historical trends.

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Peers Comparison Name Market Cap Core Earnings PER (x) - Core Earnings PBV (x) ROE Net Div.Yld. 19/9/18 Growth (%) (%) (RM'm) 1-Yr. 2-Yr. 1-Yr. Fwd. 2-Yr. Fwd. Hist 1-Yr. 1-Yr. 1-Yr. Fwd. Fwd. Fwd. . Fwd. Fwd. SPSETIA 10,377.0 -53.4% 30.5% 28.7 22.0 0.9 0.7 5.4% 5.8% IOIPG 8,864.9 -5.3% -2.7% 14.2 14.6 0.5 0.5 3.4% 3.1% UEMS 3,788.8 23.3% 6.8% 11.3 10.6 0.6 0.6 4.7% 1.2% ECOWLD 3,474.4 45.7% 55.7% 21.1 13.5 1.0 0.9 3.8% 0.0% Average 2.6% 22.6% 18.8 15.2 0.7 0.7 4.3% 2.5% SIMEPROP 8,025.0 14.4% 44.5% 19.1 13.2 0.8 0.8 4.2% 2.1%

Source: Kenanga Research, Bloomberg

VALUATIONS Initiating coverage with MARKET PERFORM and TP of RM1.25 based on 61% discount to our FD SoP of RM3.24. Our FD SoP is driven by DCF of future profits of its on-going and future projects with an average net margin of 18% and a WACC rate of 9%. Note that we have not included the optioned lands into our valuations. Our applied discount is based on the average of our applied RNAV discount for IOIPG (68%) and SPSETIA (54%) being SIMEPROP’s direct comparisons. We are also conservatively valuing its property investment, hospitality and concession at book value, i.e. no surplus to valuations. Future land sales are not reflected in our estimates which means there could be more upsides to the group’s book value as quite several its non-core asset disposals were at JV/associates levels, which recognized significant gains. Selected Peers RNAV Discounts Historical Historical Historical Discount @ Discount of Property HIGH Average LOW Last Price RNAV/SOP levels based Discount to Discount to Discount/ 18/9/18 on TPs @ 18/9/18 FD FD Premium to RNAV/SOP RNAV/SOP FD RNAV/SOP

IOIPG -71% -60% -51% -70% -68% SPSETIA -66% -44% -15% -65% -54% UEMS -84% -65% -23% -81% -78% ECOWLD -65% -55% -43% -63% -59% Selected Peer Average -72% -56% -33% -70% -65% SIMEPROP n.a. n.a. n.a. -64% -61%

Source: Kenanga Research

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FD SOP Projects Location Stake Assumed Remaining Remaining WAC DCF Value Duration GDV Net Profit C (%) (RM m)*** (Yrs) (RM'm) *** (RM'm) Unbilled Sales 100% 3 1,766 120 9% 101 Launched but not yet sold 100% 3 1,600 109 9% 92 Niche/Integrated ALYA Kuala Lumpur 100% 8 7,200 490 9% 337 - Senada Residences Kuala Lumpur 60% 5 0 0 9% 0 Chemara Hills Seremban 100% 5 40 3 9% 2 USJ Heights Subang Jaya 100% 5 200 14 9% 10 SJ7 Subang Jaya 100% 5 5,250 358 9% 253 SJCC Subang Jaya 100% 5 3,600 126 9% 98 KL East Setapak 100% 5 2,200 224 9% 159 Township City of Elmina: Elmina West Shah Alam 100% 20 15,350 3,773 9% 1,698 City of Elmina: Elmina East Shah Alam 100% 15 2,500 614 9% 326 City of Elmina: Denai Alam & Bukit Shah Alam 100% 8 1,000 351 9% 241 Subang Bandar Bukit Raja 2 & 3 Klang 100% 20 11,450 3,216 9% 1,214 Bandar Bukit Raja 1 Klang 100% 10 1,200 337 9% 214 Serenia City Dengkil, Sepang 100% 15 8,750 2,458 9% 1,195 Putra Heights Subang Jaya 100% 8 3,400 239 9% 164 Ara Damansara Petaling Jaya 100% 8 6,700 706 9% 485 - Oasis Corporate Park Petaling Jaya 60% 5 0 0 9% 0 Bukit Jelutong Shah Alam 50% 5 1,200 105 9% 75 Saujana Impian Kajang 100% 5 30 4 9% 3 Taman Melawati Ulu Klang 100% 5 600 84 9% 60 Nilai Impian 2 Nilai 100% 12 3,100 653 9% 353 Nilai Impian 1 Nilai 100% 10 1,000 211 9% 123 Bandar Ainsdale Seremban 100% 12 1,200 84 9% 50 Planters' Haven Nilai 100% 5 100 14 9% 10 Bandar Universiti Pagoh Muar 100% 15 5,450 1,148 9% 610 Taman Pasir Putih Pasir Gudang 100% 5 200 63 9% 45 Overseas Serenity Cove Gold Coast, 60% 5 1,950 164 9% 127 Australia Battersea London, UK 40% 8 36,427 2,558 9% 1,511 Future Development Kota Elmina Shah Alam 100% 20 11,643 2,453 9% 711 Lagong Gombak 100% 20 11,175 2,354 9% 682 MVV Negeri Sembilan 100% 20 9,716 2,047 9% 772 Jerai Estate Kedah 100% 15 4,767 1,004 9% 447 Mostyn Estate Sabah 100% 10 438 92 9% 49 Remaining area 100% 15 1,307 275 9% 79 Property DCF 12,296 Surplus/ (Deficit) *** Investment, Hospitality, 0.0 Concessions, Others Shareholder's Funds @ 4Q18 9734.6 SOP 22,030

SOP per share (RM) MYR 3.24 No. of shares ('m) 6,801 Dilution Impact 0 FD SOP/share (RM) MYR 3.24 FD No. of shs ('m) 6,801 Property Discount -61% -13,505 TP (RM) SOP Discount -61% MYR 1.25 *** Effective

Source: Kenanga Research

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APPENDIX Company Background Sime Darby Property Corporate Structure

Source: Company Sime Darby Property (SIMEPROP) is an established property developer with track record of over 40 years in the development of landed to strata properties, with well-known townships such as Taman Melawati, Subang Jaya and Bukit Jelutong. According to Frost & Sullivan, SIMEPROP has the largest land bank in Malaysia and are also one the largest property developers by revenue and scale of operations, with a footprint in the United Kingdom through SIMEPROP’s involvement in the development of the iconic Battersea Power Station in London. Its existing land bank are strategically connected to major highways and are located mainly within key growth areas and economic corridors from the central region of Klang Valley all the way to Negeri Sembilan and Johor in the South. Property development and land sales make-up the biggest driver for the group at 89%-95% of revenue and 87%-91% of gross profit for FY15-18A a) Property Development SIMEPROP has been involved in the property development business for over 40 years and has a strong track record of developing landed to strata properties covering residential, offices, retail and industrial developments. SIMEPROP are also present in the United Kingdom through the development of Battersea of Power Station, a project under a joint venture with SPSETIA and EPF. SIMEPROP owns about 20,572 ac acres of remaining developable land bank which are located mainly at strategic locations around the Klang Valley, Negeri Sembilan and Johor. 12,147 acres of the remaining developable land bank which SIMEPROP owns are located within SIMEPROP’s existing 23 active townships (being developments that are on-going, having obtained development approvals, launched projects/ products in FY15-17A and having remaining developable land parcels) as well as integrated and niche developments. These developments are estimated to generate a GDV of about RM81.7b. The remaining 8 ,425 acres of land bank are for future development.

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b) Property Investment Under the Property Investment arm, SIMEPROP undertakes leasing and property management services in respect of assets which are located in Malaysia, Singapore and the United Kingdom. As the LPD, SIMEPROP (including joint ventures) manage and lease a total commercial space of about 2m sf.. Part of the strategy of the company to grow its portfolio of assets (including those held under joint venture), includes a joint venture with Pronto, a subsidiary of CapitaMalls Asia, via a shareholders agreement dated 9 May 2012, to develop and manage Melawati Mall which is located in Taman Melawati, Kuala Lumpur. Melawati Mall opened its door to the public in July 2017 whereas KL East Gallery is being developed by SD Melawati and will be managed by SD Property (Sungai Kapar), both of which are wholly-owned subsidiaries. These retail developments will form the key components of SIMEPROP’s property investment portfolio. c) Leisure and Hospitality Under the Leisure and Hospitability arm, SIMEPROP manages hospitality and leisure assets which include Sime Darby Convention Centre in Kuala Lumpur, TPC Kuala Lumpur (formerly known as Kuala Lumpur Golf and Country Club), Impian Golf and Country Club in Kajang, Selangor, Darby Park Serviced Residences Margaret River in Australia, Darby Park Executive Suites in Singapore and Darby Park Serviced Residences in Vietnam. Note that the management have plans to dispose the overseas assets in Vietnam, Australia and Singapore. Pre-IPO Shareholding Structure

Source: Company

Post IPO Shareholding Structure

Source: Company

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History and Key Milestones Year Event 2007 -Established following the merger of Sime Darby, Guthrie and Golden Hope. 2011 -Launched integrated mixed development KL East. -Launched luxury residence Kenny Hills, in Bukit Tunku -Launched Bandar Ainsdale and 1st “Affordable Homes” project in collaboration with the Government agency, PR1MA within the township. 2012 -Entered into a joint venture with Proto, a subsidiary of CapitaMalls Asia to develop Melawati Mall in Selangor. -Ventured into the property development market in the United Kingdom. The Malaysian consortium consisting of company, SP Setia and EPF acquired the iconic Battersea Power Station in London for the purchase consideration of GBP400.0m. -Awarded by the government the concession to undertake development of 4 higher learning institutions within the country’s 1st multi-varsity education hub located within Bandar Universiti Pagoh, Johor. -Launched 5,000 acre freehold township, City of Elmina, comprehensive township dedicated to the pursuit of a healthy and balanced lifestyle. 2013 -Launched integrated mixed use township, Serenia City, Dengkil in Sepang -Launched the first commercial product in Bandar Universiti Pagoh, Johor. 2016 -Launched ALYA Kuala Lumpur, a new luxury lifestyle property development surrounding one of Malaysia’s leading golf courses, TPC Kuala Lumpur (formerly known as Kuala Lumpur Golf and Country Club). 2017 -SDB announced a restructuring plan and share distribution exercise that will result in the spin-off and listing of our Company, which will enable our Company to pursue our objectives with greater focus and agility and to take better advantage of potential growth opportunities and maximise value of shareholders. -Entered into discussion with KWAP and Brunsfield Development Sdn Bhd to explore collaboration opportunities to develop the first phase of development within MVV.

Source: Company

Board of Directors Name Designation Background and Key Achievements Tan Sri Dr. Zeti Akhtar Aziz Non-Independent Non- - Currently the Group Chairman of Permodalan Nasional Executive Chairman Berhad - Currently a member in the Council of Eminent Persons and sits on the board of directors of Permodalan Nasional Berhad and Amanah Saham Nasional Berhad - Holds a Ph.D. from the University of Pennsylvania, specialising in Monetary and International Economics and a Bachelor of Science Degree in Economics from the University of Malaya - Was the 7th Governor of Bank Negara Malaysia ("BNM") from 2000 to 2016 and Acting Governor of BNM in 1998. Dato' Sri Amrin Awaluddin Managing Director - An Independent Non-Executive Director of Taliworks Corporation Berhad and CIMB Bank Berhad - Currently sits on the board of directors of Media Prima Berhad and its subsidiaries - A member of the Chartered Institute of Management Accountants, United Kingdom (CIMA) and a Chartered Accountant of the Malaysian Institute of Accountants - Holds a Bachelor of Business Administration (Honours) from the Acadia University, Canada and subsequently, a Master of Business Administration (Finance) with Distinction from University of Hull, United Kingdom Datuk Tong Poh Keow Executive Director – - Currently sits on the board of directors of Media Prima Chief Financial Officer Berhad and its subsidiaries - A member of the Malaysian Accounting Standards Board - A Fellow of the Chartered Association of Certified Accountants and Chartered Accountant of the Malaysian Institute of Accountants - Holds a Diploma in Commerce from Kolej Tunku Abdul Rahman

Source: Company

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Board of Directors (cont’d) Name Designation Background and Key Achievements YAM Tengku Datuk Seri Independent Non- - Currently the Chairman of Dutaland Berhad, Global Oriental Ahmad Shah Alhaj Ibni Executive Director Berhad, Titas Holding Sdn Bhd, Titas Realty Sdn Bhd and Almarhum Sultan TasGlobal Sdn Bhd Salahuddin Abdul Aziz - A director of Mycron Steel Berhad and serving on the board Shah Alhaj of directors of several companies involved in the property development business such as City Properties Sdn Bhd and M.A. Development Sdn Bhd. and sits on the Board of Trustee of the Cancer Research Malaysia - Holds a Diploma in Business Administration from the University Teknologi Mara Dato' Johan Ariffin Independent Non- - Currently a Chairman of Maybank (Cambodia) Plc., Executive Director Mitraland Group of Companies and BPHCL - Sits on the Board of Malayan Banking Berhad, Maybank Ageas Holdings Berhad, Etiqa Insurance Berhad, Etiqa Takaful Berhad and Etiqa International Holdings Sdn Bhd - A director of TPPT Sdn Bhd, Pelaburan Hartanah Nasional Berhad and PNB Merdeka Ventures Sdn Bhd. - Holds a BA (Economies) from Indiana University, USA and MBA (Marketing) from the University of Miami, USA Dato’ Jaganath Derek Independent Non- - Currently the Founder and CEO / Director of Tribeca Real Steven Sabapathy Executive Director Estate Asset Management Sdn Bhd - Currently a Director of Ho Hup Ventures (KK) Sdn Bhd and Golden Wave Sdn Bhd - Holds a Master of Arts majoring in Corporate Finance and International Trade from Edinburgh University, United Kingdom - From 1999 until his retirement in 2013, he served as the CEO / Director of Bandar Raya Developments Berhad Group Datuk Dr Mohd Daud Bakar Non-Independent Non- - Founder and Executive Chairman of Amanie Group Executive Director - Currently serves as the Chairman of the Shariah Advisory Council of Central Bank of Malaysia, the SC, Labuan Financial Services Authority, and First Abu Dhabi Bank - Currently the third Chair Professor in Islamic Banking and Finance of Yayasan Tun Ismail Mohamed Ali Berdaftar (YTI) PNB at Faculty of Economics and Mualamat, Universiti Sains Islam Malaysia (USIM) Dato’ Seri Ahmad Johan Independent Non- - Currently a Non-Independent Non-Executive Director of Mohammad Raslan Executive Director AMMB Holdings Berhad and an Independent Non-Executive Director of Eco World International Berhad. - Also an Independent Non-Executive Director of Prima Ekuiti (UK) Limited (a subsidiary of KWAP), and a Non-Independent Non-Executive Director of QPR Holdings Ltd, both of which are private companies in the United Kingdom - Holds a Bachelor of Economics (Honours) degree in Economics and Accountancy from the University of Hull, United Kingdom - Qualified as a Fellow of the Institute of Chartered Accountants in England and has been a member of the Malaysian Institute of Certified Public Accountants since 2002 and was its President from 2011 to 2012

Source: Company

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Board of Directors (cont’d) Name Designation Background and Key Achievements Datin Norazah Mohamed Independent Non- - Has experience in advising clients on regional economic Razali Executive Director development including, real estate and commercial development as well as marketing and investments, industry re-structuring as well as company level transformation for growth strategies across ASEAN - Graduated with a Bachelor of Laws (Honours) degree from the International Islamic University Malaysia, and also holds a Diploma of the Imperial College in Management from Imperial College, United Kingdom and has received a Master of Business Administration (MBA) in Management from The Imperial College Business School, University of London, United Kingdom - Was admitted as an Advocate and Solicitor of the High Court of Malaya and became a member of the Malaysian Bar in 1994 Rizal Rickman Bin Ramli Non-Independent and - Currently is the Executive Vice President for the Non-Executive Director Property/Real Estate Division of Permodalan Nasional Berhad (PNB) - Graduated from University of Chicago with a Bachelor of Arts , Economics (Honours) and also holds a Master of Business Administration from Kellogg School of Management, Northwestern University -Holds directorships in Perlaburan Hartanah Nasional Berhad, MIDF Property Berhad and UMW Oil & Gas Corporation Berhad -Also the Chair of the Regulatory & Government Affairs Committee of the Malaysian Gas Association and also a Mentor with Endeavor Malaysia

Source: Company

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SIMEPROP Major Project Details Remaining Sub- Remaining Product Township Total Area Total GDV developable Product type Connectivitiy township GDV price range Area (ac) (RM’b) (RM’b) (ac) -Guthrie Corridor Expressway

(GCE)

-Shah Alam - Batu Arang Highway

Bukit Subang 250 24.8 18.9 144.0 N.A. N.A. -NKVE

-Kuala Lumpur - Kuala Selangor

Expressway (LATAR) City of Elmina

Residential - Mostly above -Damansara - Shah Alam Elevated Denai Alam 1,000 Landed RM1.0m Expressway (DASH) Residential - Above Elmina East 1,089 583.2 Landed RM1.0m Mostly Residential - between Elmina West 2,661 2511.5 -MRT via Sungai Buloh station Landed RM0.5m to RM1.0m Residential landed are Residential - mostly Landed and -Jalan Meru between High Rise RM0.5m - RM1.0m

Bandar Bukit Apartment are 1,513 160.6 Bandar Bukit Raja 1 17.9 12.7 Commercial priced below -NKVE Raja RM0.5m

Commercial units are -New North Klang Straits Bypass above RM1.0m

Bandar Bukit 2,820 2665.0 -West Coast Expressway (WCE) Raja 2 & 3 Residential -Maju Expressway

Serenia City 2,370 9.3 8.8 1462.0 Commercial -ELITE Highway

Industrial

Residential - "The Glades" Landed and is above -ELITE Highway

High Rise RM1.0m

"Putra Residence"is mostly -Damansara-Puchong Highway Putra Heights 1,798 7.1 3.4 77.4 Commercial between (LDP) RM0.5m - RM1.0m

"Harmoni 1" -LRT stations namely Alam Megah, is below Subang Alam and Putra Heights RM0.5m

Source: Company, Kenanga Research

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Sime Darby Major Project Details (continuation) Remaining Sub- Remaining Product Township Total Area Total GDV developable Product type Connectivitiy township GDV price range Area ac RM b RM b ac Residential - Landed and -NKVE High Rise Residential high rise units Commercial are priced -Federal Highway Ara from RM0.5m 693 8.9 6.7 80.3 Damansara and above -Subang - Kelana Jaya link road

-LRT

Residential - Landed and -NKVE High Rise

Commercial -Sprint Highway

Residential -DUKE units are ALYA Kuala priced above Lumpur 360 7.3 7.2 50.5 RM1.0m -LDP

-Kerinchi Link

-Penchala Link

-Federal Highway Residential -Ampang-KL Elevated Highway

High Rise (AKLEH)

Commercial -Duta-Hulu Klang (DUKE)

Residential high rise KL East 180 2.4 2.2 50.8 -Middle Ring Road 2 (MRR2) priced above RM0.5m

-Karak Expressway

-Setiawangsa Pantai Expressway

(SPE) Residential - -Federal Highway High Rise

Subang Jaya 30 4.1 3.6 28.1 Commercial -KTM City

-LRT

Source: Company, Kenanga Research

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Sime Darby Major Project Details (continuation) Remaining Sub- Remaining Product Township Total Area Total GDV developable Product type Connectivitiy township GDV price range Area ac RM b RM b ac Residential Residential - landed priced Landed and between -North-South Expressway

High Rise RM0.5m - RM1.0m Nilai Impian 1 1,263 5.4 4.1 163.5 Nilai Impian High rise -North-South Expressway Central Commercial priced below Link (ELITE) RM0.5m

-Kajang-Seremban Highway Nilai Impian 2 546 426.0 (LEKAS) Residential - Residential -North-South Expressway Landed mostly priced Bandar 562 1.7 1.2 169.3 between Ainsdale RM0.5m to Commercial RM1.0m -KTM Komuter station Residential - Residential Bandar Landed mostly priced Universiti 4,099 6.3 5.5 3262.0 -North-South Expressway below Pagoh Commercial RM0.5m

Source: Company, Kenanga Research

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(a) Major property development projects within Klang Valley City of Elmina Total area (ac) 5,000 Brief Descriptions The City of Elmina is further divided into 4 parts, namely, Bukit Subang (250 acres), Denai Alam (1,000 acres), Elmina East (1,089 acres) and Elmina West (2,661 acres), which is estimated to take 20 years to complete. Estimated total GDV RM24.6b Estimated remaining RM18.9b GDV

Source: Prospectus The 5,000 acres City of Elmina is a cluster of townships located along the GCE. The project is part of the Selangor Vision City, where the entire Guthrie Corridor is set to be the growth centre and catalyst within the Greater KL and the Klang Valley.The Selangor Vision City which covers the areas along the GCE was introduced by SIMEPROP in 2007. The 4 townships within this area comprise Bukit Jelutong (2,205 acres), City of Elmina (5,000 acres), Kota Elmina (1,540 acres) and Lagong (1,549 acres). The City of Elmina is located 21 km west of Kuala Lumpur city centre and enjoys connectivity via the GCE (through Denai Alam and Elmina Interchange), Shah Alam - Batu Arang Highway, NKVE, Kuala Lumpur Kuala Selangor Expressway (LATAR) as well as the proposed Damansara - Shah Alam Elevated Expressway (DASH) which will connect the township to Penchala Link, enabling a shorter drive towards Kuala Lumpur as well as the Subang Airport. Additionally, the City of Elmina is also connected to the Mass Rapid Transit (MRT) line via the nearest Sungai Buloh station. Bandar Bukit Raja Total area (ac) 4,333 Brief Descriptions Bandar Bukit Raja comprises 2 townships, namely, Bandar Bukit Raja 1 and Bandar Bukit Raja 2 & 3), launched in 2002 and 2016 respectively. It consists of a diverse mix of residential projects comprising affordable, medium and high-end homes as well as commercial and industrial properties. Estimated total GDV RM17.9b Estimated remaining RM12.7b GDV

Source: Prospectus Bandar Bukit Raja is accessible via Jalan Meru, NKVE and New North Klang Straits Bypass. The West Coast Expressway (WCE) which is currently under construction will act as the road transport backbone of Bandar Bukit Raja township upon completion. It is close to Port Klang and just 30 minutes from KLIA which makes it an ideal hub for international freight and logistics activities, while its close proximity to other surrounding matured townships offers ample employment and business opportunities for its residents. A 125-acre centralised town park is currently being planned. Once completed, it will be the largest park in Klang; allowing residents to enjoy group activities and family outings amidst greenery and a lush landscape. Bandar Bukit Raja will encompass the 500 acres Sime Darby Business Park as well as supporting port and logistic industries as part of its integration ambition which will also help create employment opportunities. Its proximity to Port Klang, a key gateway to the country, and within the Greater KL boundary ensures its continued importance in terms of location, value and expandability.

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Serenia City Total area (ac) 2,370 Brief Descriptions The freehold mixed-development project is intended to comprise more than 14,000 residential units, with a variety of commercial and industrial developments. It currently enjoys access to Maju Expressway which will be accessible via direct interchange from the ELITE Highway. Estimated total GDV RM9.3b Estimated remaining RM8.8b GDV

Source: Prospectus Serenia City was launched in 2013 and is expected to be fully developed by 2035. With Serenia City being of equal distance from Putrajaya and KLlA, SIMEPROP expects this township to serve as an economic and transportation hub for its surrounding area. SIMEPROP intends to incorporate two of our key concepts i.e. the Sime Darby Business Park and the TOD model into this township, in view that there is an existing ERL station in the vicinity. There is currently one on-going development phase with a total estimated GDV of RM119.0m. The upcoming or future development phases estimated at a GDV of RM8.5b are targeted for launch over the next 10 to 15 years. Putra Heights Total area (ac) 1,796 Brief Descriptions Putra Heights is connected by major highways and byways through the ELITE Highway as well as an access via Damansara- Puchong Expressway. It has greater connectivity through the recent completion of the LRT networks, and has 3 new LRT stations in the township, namely, Alam Megah, Subang Alam and Putra Heights. Estimated total GDV RM7.1b Estimated remaining RM3.4b GDV

Source: Prospectus Putra Heights was launched in 1999 and consists of residential and commercial developments. It boasts an innovative and award-winning project, namely, The Glades and one of SIMEPROP’s latest TADs, Putra Residences. There is currently one ongoing development with a total estimated GDV of RM209.3m while the upcoming or future development phases with an estimated GDV of RM3.6b are expected to be completed over the next 12 years. Ara Damansara Total area (ac) 693 Brief Descriptions It is accessible via NKVE, Federal Highway and Subang - Kelana Jaya link road, and is near to the Subang Airport. Its connectivity has been improved with the completion of 2 new LRT line stations within Ara Damansara. Estimated total GDV RM8.9b Estimated remaining RM6.7b GDV

Source: Prospectus Ara Damansara was launched in 1999 and is located within Petaling Jaya North. This township has evolved from a landed property township into an integrated development which includes retail outlets and offices. There are currently 3 on-going developments with an estimated GDV of RM1.4b. The upcoming or future development phases estimated at a GDV of RM4.5b are planned to be completed over the next six years. Oasis Damansara is a development incorporating business suites and apartments, including Oasis Square and Oasis Corporate Park.

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ALYA Kuala Lumpur Total area (ac) 62 Brief Descriptions ALYA Kuala Lumpur development encompasses TPC Kuala Lumpur, one of Malaysia's premier golf and country clubs. It is located within a 360acre natural setting and reflects urban living amidst natural surroundings in Bukit Kiara, Kuala Lumpur. It is located 8 km from the heart of the city centre. Estimated total GDV RM7.3b Estimated remaining RM7.2b GDV

Source: Prospectus ALYA represents maiden involvement in the premium, branded lifestyle segment. ALYA Kuala Lumpur comprises 9 development parcels of 62 acres and covers residential, office and retail components flanked by affluent neighbourhoods. ALYA Kuala Lumpur is located adjacent to the 245 acres Bukit Kiara public park and surrounded by Kuala Lumpur's affluent western suburbs within a 15km radius. These suburbs are complemented with established international schools, health-care specialist centres, retail malls, and food and beverage outlets. There are currently two on-going developments with an estimated GDV of RM865.1m and the upcoming or future development phases with an estimated GDV of RM5.9b are expected to be completed over the next nine years. KL East Total area (ac) 160 Brief Descriptions KL East is connected by various highways such as the Ampang-KL Elevated Highway (AKLEH), Duta- Hulu Klang (DUKE), Middle Ring Road 2 (MRR2), and Karak Expressway, and will also benefit from the upcoming Setiawangsa Pantai Expressway (SPE) which has a direct link to the Tun Razak Exchange and Bandar Malaysia development corridor. Estimated total GDV RM2.4b Estimated remaining RM2.2b GDV

Source: Prospectus KL East was launched in 2011 as an urban integrated residential, lifestyle and commercial enclave with the Klang Gates Quartz Ridge as its natural backdrop. More than 50% of the development comprises green open spaces, including the KL East Eco Park which spans 53 acres and includes facilities such as look-out points and jungle trekking. All buildings within this development are Green Building Index (GBI) rated. There are currently two residential developments and a retail mall within KL East with a total estimated GDV of RM890.4m. The upcoming or future development phases with estimated GDV of RM1.4b are expected to be completed over the next nine years. The latest development launched is Quarza Residence, an integrated development featuring two residential towers with a total of SOB units. The Quarza Residence sits atop the KL East Gallery, which will have four levels of retail space. KL East will also be home to Kolej Yayasan Saad (KYS) International School, scheduled for opening in early 2019, catering to pre-school, primary and secondary education levels.

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Subang Jaya City Centre (SJCC) Total area (ac) 30 Brief Descriptions SJCC will feature a modern multi- modal transportation system, with integrated bus and taxi services in addition to KTM Komuter trains and the recently completed LRT train service, within a single integrated transportation hub. Estimated total GDV RM4.1b Estimated remaining RM3.6b GDV

Source: Prospectus The year 2016 marked Subang Jaya's 40th anniversary. The township has grown into a thriving and dynamic community. Sime UEP Properties Bhd first began developing Subang Jaya in 1976. The development of SJCC, envisioned as an urban living lifestyle destination centred on a transit station as the gateway to Subang Jaya is expected to continue to revitalise the matured township for many years to come. SJCC will feature a modern multi-modal transportation system, with integrated bus and taxi services in addition to KTM Komuter trains and the recently completed LRT train service, within a single integrated transportation hub. Isola development was launched within SJCC with a GDV of RM211.0m. The upcoming or future development phases with a GDV of RM3.8b are to be completed over the next 11 years. Summary of major property development projects (Klang Valley) Project Name Total Area Estimated Total GDV Estimated Remaining GDV (ac) (RM'b) (RM'b) City of Elmina 5,000 24.6 18.9 Bandar Bukit Raja 4,333 17.9 12.7 Serenia City 2,370 9.3 8.8 Putra Heights 1,796 7.1 3.4 Ara Damansara 693 8.9 6.7 ALYA Kuala Lumpur 62 7.3 7.2 KL East 160 2.4 2.2 Subang Jaya City Centre 28 4.1 3.6 Total 14,442 81.6 63.5

Source: Prospectus (b) Major property development projects within Negeri Sembilan Nilai Impian Total area (ac) 1,809.0 Brief Descriptions Nilai Impian comprises two townships, namely, Nilai Impian 1 and Nilai Impian 2 which were launched in 1997 and 2014 respectively. Set amidst the rapidly growing town of Nilai in Negeri Sembilan, Nilai Impian is a township that embodies the essence of SIMEPROP’s commitment to innovation and sustainability. Estimated total GDV RM5.4b Estimated remaining RM4.1b GDV

Source: Prospectus Nilai Impian is the amalgamation of several former estates, transformed into a comprehensive township at the Pajam Nilai interchange along the North-South Expressway. Nilai Impian is strategically situated at the fringe of Greater Kuala Lumpur and is the gateway to the Southern Klang Valley growth corridor. Located within a 30km radius from major hubs such as KLlA, Putrajaya and KL City Centre, on a site with direct frontage to one of the country's busiest and most prominent expressway, the North-South Expressway, there is considerable growth potential in Nilai Impian. Set against a stunning backdrop of lush greenery and an idyllic lake, the emphasis of this township development is on the outdoors, with bountiful landscaping, family parks, pedestrian walkways and bicycle paths. With an array of facilities within close proximity - shopping, schools, colleges, universities and 2 golf courses - Nilai Impian is the epitome of comfortable and convenient living.

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Bandar Ainsdale Total area (ac) 562 Brief Descriptions Bandar Ainsdale is a 562-acre freehold mixed residential and commercial township between the two cities of Kuala Lumpur and Seremban. Estimated total GDV RM1.7b Estimated remaining RM1.2b GDV

Source: Prospectus With the rising cost of housing in KL and central Klang Valley, Bandar Ainsdale provides the best of both worlds; a reasonably affordable alternative for those currently working and living in KL while also providing a peaceful and calm lifestyle. Bandar Ainsdale also boasts quality and wellness amenities where residents can enjoy a more active, outdoor lifestyle surrounded by parks, lakes and wide open natural space. Bandar Ainsdale is easily accessed via the Bandar Ainsdale Interchange linking to the North-South Expressway and the KTM Komuter station within the township. Major property development projects (Negeri Sembilan) Project Name Total Area Estimated Total GDV Estimated Remaining GDV (ac) (RM'b) (RM'b) Nilai Impian 1,809 5.4 4.1 Bandar Ainsdale 562 1.7 1.2 Total 2,371 7.1 5.3

Source: Prospectus (c) Major property development projects within Johor Bandar Universiti Pagoh Total area (ac) 4,099 Brief Descriptions It is strategically located off the Pagoh interchange on the North- South Expressway in the district of Muar, Johor. This township spans over 4,099 acres and is centrally located between Kuala Lumpur and Singapore making it highly accessible. There are exciting growth prospects for Pagoh, being the gateway to the northern part of Johor. Estimated total GDV RM6.3b Estimated remaining RM5.5b GDV

Source: Prospectus The proposed Muar high-speed rail station will enhance Bandar Universiti Pagoh's connectivity, making it an ideal location for businesses to develop, grow and succeed. Pagoh Education Hub which is located within Bandar Universiti Pagoh is Malaysia's largest education hub which will be home to 4 institutions of higher learning which can accommodate a total of 10,800 students from International Islamic University Malaysia {IIUM}, Universiti Tun Hussein Onn Malaysia (UTHM), Universiti Teknologi Malaysia (UTM) and Politeknik Tun Syed Nasir Syed Ismail (PTSNSI)

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Major property development projects undertaken by associates and joint ventures Battersea Power Station Project Total area (ac) 41.7 Brief Descriptions The planned development consists of 3,603 private residential units, 636 affordable residential units and around 2.5 million square foot of commercial areas. Estimated total GDV GBP9.3b Estimated remaining GBP9.0b GDV

Source: Prospectus Battersea Power Station ("BPS") development is a joint venture project with SPSETIA and the EPF, which expanded our overseas property development footprint and provided SIMEPROP with a unique opportunity to participate in one of London's most iconic developments. Located in the south-west of London, the Battersea Power Station project involves a development of around 41.7 acres with an estimated total GDV of GBP9.3b, to be launched over seven phases. The main site measured at 39.1 acres was acquired by the joint venture GBP400.0m in 2012. In 2014, an additional 2.6 acres of land adjacent to the main site was acquired to deliver an alternative affordable housing strategy for the mixed development. 1,661 residential units plus 1.3m sf of commercial areas for the first 3 phases with a total GDV of GBP4.4b have been launched (since 2013), and the entire seven phases of development is expected to be completed by 2028. Radia @ Bukit Jelutong Total area (ac) 20.95 Brief Descriptions 4 out of 5 phases with a total GDV of about RM1.0b are ongoing. The upcoming or future development phases which consist of serviced apartment and retail mali, estimated at a GDV of RM0.9bi, will be launched at the appropriate time after completion of the other phases. Estimated total GDV RM1.9b Estimated remaining RM1.9b GDV

Source: Prospectus Radia @ Bukit Jelutong is SIMEPROP’s 50:50 joint venture mixed development project with UEM Sunrise Berhad located at a strategic freehold land in Bukit Jelutong township, Shah Alam. The name 'Radia' which is Latin for radius - a line from the centre of a circle to the outer edge - reflects the design of the 7 blocks, lined up in a semi-curve, hand-fan-like design, incorporating a tree-lined pedestrian space and retail promenade concept that originates from Spain. It consists of serviced apartments, retail units as well as office units. Major property development projects (JV) Project Name Total Area Estimated Total GDV Estimated Remaining GDV (ac) Battersea Power Station Project 42 GBP 9.3b GBP 9.0b Radia @ Bukit Jelutong 21 RM 1.9b RM 1.9b

Source: Prospectus

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List of Investment & Hospitality Assets Existing Investment Property by Type/Area Investment Properties Location FY17 FY17 GP GP Margin Revenue (RM'm) (%) (RM'm) 2017 2017 2017 Wisma Zuellig Klang Valley 0 -0.2 n.a. Wisma Guthrie Klang Valley 2.6 1.5 58% Oasis Square Klang Valley 14 3.9 28% Wisma Sime Darby Klang Valley 19.8 2.6 13% Sime Darby Business Centre Singapore 4.6 3.6 78% 160 Dundee Street, Edinburgh United 5.9 3.8 64% Kingdom Others 7.7 7.7 100% Total 54.6 22.9 42%

Source: Company

Existing Hospitality Property by Type/Area Investment Properties Location FY17 FY17 GP GP Margin Revenue (RM'm) (%) (RM'm) 2017 2017 2017 Saujana Impian Golf & Country Club Klang Valley 6.0 1.9 32% Sime Darby Convention Centre Klang Valley 27.3 8.8 32% TPC Kuala Lumpur Klang Valley 53.9 40.6 75% Genting View Resort Pahang 3.0 0.2 7% Darby Park Serviced Residences , Margaret Australia 6.6 4.0 61% River Karri Valley Resort Australia 9.5 3.6 38% Darby Park Executive Suites Singapore 9.3 6.3 68% Darby Park Serviced Residences Vietnam 1.9 0.9 47% Others 0.6 0.3 50% Total 118.1 66.6 56%

Source: Company

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Income Statement Financial Data & Ratios FY Jun (RM'm)* FY17 FY18 FPE18E FY19E FY20E FY Jun (RM'm)* FY17 FY18 FPE18E FY19E FY20E Revenue 2,611 2,353 1,285 2,667 3,137 Growth (%) EBITDA 562 640 256 531 678 Revenue 1% -10% -45% 107% 18% Depreciation -57 -47 -23 -47 -54 EBITDA -46% 14% -60% 108% 28% EBIT 505 593 232 484 624 EBIT -48% 17% -61% 108% 29% Net Interest Expense 65 46 21 39 46 Pre-tax Income -7% -18% -60% 110% 38% Associates/JV 319 90 40 95 180 Net Income -17% 3% -69% 113% 44% Exceptional Items -115 -273 0 0 0 Core Net Income 64% -28% -46% 113% 44% PBT 889 728 294 618 850 Taxation -180 -44 -61 -125 -161 Profitability (%) MI & Perp. Sukuk -85 -44 -35 -72 -83 EBITDA Margin 22% 27% 20% 20% 22% Net Profit 624 640 197 420 607 EBIT Margin 19% 25% 18% 18% 20% Core Net Profit 510 367 197 420 607 PBT Margin 34% 31% 23% 23% 27% Net Margin 24% 27% 15% 16% 19% Balance Sheet Core Net Margin 20% 16% 15% 16% 19% FY Jun (RM'm)* FY17 FY18 FPE18E FY19E FY20E Effective Tax Rate 20% 6% 21% 20% 19% Fixed Assets 3,087 3,822 3,879 3,912 3,888 ROE 8% 4% 2% 4% 6% Intangibles 5 4 4 4 4 ROA 4% 3% 1% 3% 4% Other FA 3,526 3,778 3,818 3,913 4,093 Inventories 4,579 4,882 4,665 5,115 5,527 DuPont Analysis Receivables 709 743 810 840 859 Net margin (%) 20% 16% 15% 16% 19% Other CA 981 594 594 594 594 Assets Turnover (x) 0.2 0.2 0.1 0.2 0.2 Cash 1,129 749 790 850 728 Leverage Factor (x) 2.2 1.5 1.5 1.5 1.5 Total Assets 14,018 14,573 14,559 15,228 15,693 ROE (%) 8% 4% 2% 4% 6%

Payables 2,324 1,459 1,353 1,607 1,891 Leverage ST Borrowings 275 496 496 496 496 Debt/Asset (x) 0.1 0.2 0.2 0.2 0.2 Other ST Liabilities 233 177 150 212 230 Debt/Equity (x) 0.3 0.3 0.3 0.3 0.2 LT Borrowings 1,789 2,047 2,047 2,147 1,947 Net Debt/(Cash) 935 1,793 1,752 1,792 1,714 Other LT Liabilities 2,808 430 430 430 430 Net Debt/Equity (x) 0.1 0.2 0.2 0.2 0.2 MI & Perp. Sukuk 265 231 231 231 231 Net Assets 6,323 9,735 9,853 10,105 10,469 Valuations EPS (sen) 9.2 9.4 2.9 6.2 8.9 Share Capital 2,405 6,801 6,801 6,801 6,801 Core EPS (sen) 7.5 5.4 2.9 6.2 8.9 Reserves 3,918 2,934 3,052 3,304 3,668 NDPS (sen) 0.7 5.0 1.2 2.5 3.6 Shareholders Equity 6,323 9,735 9,853 10,105 10,469 BV/share (RM) 0.93 1.43 1.45 1.49 1.54 PER (x) 12.9 12.5 40.6 19.1 13.2 Cashflow Statement Core PER (x) 15.8 21.9 40.6 19.1 13.2 FY Jun (RM'm)* FY17 FY18 FPE18E FY19E FY20E Net Div. Yield (%) 0.6 4.2 1.0 2.1 3.0 Operating CF 494 -288 245 202 467 PBV (x) 1.3 0.8 0.8 0.8 0.8 Investing CF -240 -3,353 -147 -113 -192 EV/EBITDA (x) 15.9 15.3 38.2 18.5 14.4 Financing CF -63 3,261 -58 -29 -397 Net Change in Cash -82 -782 -80 -80 -30 Free Cash Flow -26 90 -77 -53 4 Source: Kenanga Research

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Peer Comparison Net Last Core Earnings Name Market Shariah Current Revenue Growth PER (x) - Core Earnings PBV (x) ROE (%) Div.Yld. Target Rating Price Growth (%) Cap 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 1-Yr. 1-Yr. Price (RM) Compliant FYE Hist. Hist. (RM'm) Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. (RM) PROPERTY DEVELOPERS UNDER COVERAGE AMVERTON BHD 1.10 401.6 Y 12/2018 -8.4% -6.0% -28.7% -0.7% 16.5 23.2 23.3 0.6 0.6 2.7% 0.0% 1.00 UP CRESCENDO 1.36 380.0 Y 01/2019 12.2% 1.6% -10.4% 3.7% 10.9 12.2 11.7 0.4 0.4 3.5% 4.4% 1.30 MP CORPORATION BHD ECO WORLD 1.20 3,533.2 Y 10/2018 -1.7% -0.3% 45.7% 55.7% 31.3 21.4 13.8 1.0 0.9 3.8% 0.0% 1.30 MP DEVELOPMENT GROUP HUA YANG BHD 0.430 151.4 Y 03/2019 -3.2% 2.2% 119.1% 9.6% 34.3 15.7 14.3 0.3 0.3 1.6% 0.0% 0.465 MP IOI PROPERTIES GROUP 1.67 9,195.3 Y 06/2019 -15.0% -6.0% -5.3% -2.7% 13.9 14.7 15.1 0.5 0.5 3.4% 3.0% 1.70 MP BHD MAGNA PRIMA BHD 1.01 336.0 Y 12/2018 37.8% 0.4% 73.3% 2.6% 63.1 42.9 41.8 0.8 0.8 1.9% 1.1% 0.955 MP MAH SING GROUP BHD 1.02 2,476.2 Y 12/2018 -0.8% -0.3% -23.7% 0.7% 9.7 12.7 12.6 0.7 0.7 6.5% 5.4% 1.10 MP MALAYSIAN RESOURCES 0.720 3,164.4 Y 12/2018 -6.1% 9.1% 32.6% 6.6% 34.3 25.9 24.3 0.8 0.8 2.8% 2.4% 0.700 MP CORP BHD SIME DARBY PROPERTY 1.18 8,025.0 Y 12/2018 13.3% 17.6% 14.4% 44.5% 21.9 19.1 13.2 0.8 0.8 4.2% 2.1% 1.25 MP BHD SP SETIA BHD 2.70 10,533.0 Y 12/2018 -16.4% 7.6% -53.4% 30.5% 13.6 29.2 22.4 0.9 0.7 5.4% 5.7% 3.50 OP SUNSURIA BHD 0.900 719.0 Y 09/2018 10.9% 11.4% 5.7% 16.8% 7.9 7.5 6.4 0.9 0.8 11.7% 0.0% 1.10 OP SUNWAY BHD 1.51 7,338.9 Y 12/2018 -2.6% 4.6% -3.8% 8.1% 13.1 13.6 12.6 0.9 0.9 6.9% 4.6% 1.55 MP UEM SUNRISE BHD 0.830 3,766.1 Y 12/2018 -2.8% 28.0% 23.3% 6.8% 13.8 11.2 10.5 0.6 0.6 4.7% 1.2% 0.970 MP UOA DEVELOPMENT BHD 2.30 4,240.6 Y 12/2018 5.0% 8.9% -17.0% 10.9% 10.2 12.2 11.0 1.0 0.9 7.7% 6.1% 2.30 MP Simple Average 1.6% 5.6% 12.3% 13.8% 21.0 18.7 16.6 0.7 0.7 4.8% 2.6% *SIMEPROP change of FY-end from 30-Jun to 31-Dec. Out historical numbers are based on FY18A while 1-Yr and 2-Yr Fwd are based on FY19E and FY20E figures

CONSENSUS NUMBERS GLOMAC BHD 0.405 320.6 Y 04/2019 -35.7% 42.0% -60.7% 104.5% 10.2 26.1 12.7 0.3 N.A. 1.2% 2.5% 0.440 N.A LBS BINA GROUP BHD 0.810 1,262.8 Y 12/2018 -4.1% 15.5% 6.8% 12.3% 12.2 11.4 10.2 1.0 0.9 7.2% 4.1% 1.22 BUY MATRIX CONCEPTS 2.09 1,573.4 Y 03/2019 22.9% 14.2% 9.1% 11.6% 7.4 6.8 6.1 1.3 1.1 18.0% 6.4% 2.37 BUY HOLDINGS BHD PARAMOUNT CORP BHD 2.13 912.2 Y 12/2018 8.2% 5.0% -33.3% 3.4% 6.8 10.2 9.9 0.9 0.8 8.3% 4.2% 2.40 BUY TAMBUN INDAH LAND 0.905 392.2 Y 12/2018 -29.3% -1.4% -36.1% 0.9% 4.7 7.4 7.3 0.7 0.7 8.2% 5.3% 1.00 BUY BHD TITIJAYA LAND BHD 0.325 436.6 Y 06/2019 1.9% 5.5% 5.4% 6.4% 6.0 5.7 5.3 0.4 0.3 5.7% 39.4% 0.445 BUY YONG TAI BHD 0.695 337.5 Y 06/2019 191.9% 42.1% 308.8% 40.1% 21.8 5.3 3.8 0.9 0.8 11.4% 0.0% 1.25 BUY

Source: Bloomberg, Kenanga Research

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Stock Ratings are defined as follows:

Stock Recommendations

OUTPERFORM : A particular stock’s Expected Total Return is MORE than 10% MARKET PERFORM : A particular stock’s Expected Total Return is WITHIN the range of -5% to 10% UNDERPERFORM : A particular stock’s Expected Total Return is LESS than -5%

Sector Recommendations***

OVERWEIGHT : A particular sector’s Expected Total Return is MORE than 10% NEUTRAL : A particular sector’s Expected Total Return is WITHIN the range of -5% to 10% UNDERWEIGHT : A particular sector’s Expected Total Return is LESS than -5%

***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage.

This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies.

Published and printed by:

KENANGA INVESTMENT BANK BERHAD (15678-H) Level 12, Kenanga Tower, 237, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia Chan Ken Yew Telephone: (603) 2172 0880 Website: www.kenanga.com.my E-mail: [email protected] Head of Research

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