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. PP7004/02/2013(031762) Page 1 of 39 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 PP7004/02/2013(031762) Page 2 of 39 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.