RHB Research is maintaining its buy call for Sime Darby Property with a target price of 88 sen versus the previous 65 sen, a 35.4% upside.
Recording a decrease of revenue for the second quarter ended June 30, 2020 (2Q20) of RM288.2 mil against last year’s RM865.8 mil, the property developer took a massive hit in its earnings to -RM81.7 mil against its previous RM205.2 mil.
In an August 27 note, RHB Research analyst Loong Kok Wen said that the weak revenue was due to minimal property sales and progress billings during the movement control order (MCO).
The sequential drop in top line was also because of the RM118.7 mil land sale in Serenity Cove Gold Coast in 1Q20.
Despite missing its earnings expectations which was partly due to a RM98.2 mil impairment, Loong believes that Sime Darby Property will make a strong comeback on 2H20.
“All divisions incurred losses during the quarter as the property development division saw a RM98.2 mil write-off in development expenditures and impairment of unsold inventory,” Loong said.
“However, we are optimistic with Sime Prop’s outstanding bookings of RM1.1 bil (as at end July 2020). We believe these should underpin its property sales in 2H20, on top of the pipeline launches worth RM1 bil,” Loong added, expecting that the full year sales will likely meet management’s target of RM1.3 bil to RM1.5 bil.
Even when the lockdown was in effect, new property sales were still encouraging, coming in at RM377.9 mil versus the RM334.6 mil of 1Q20. About 40% of the total sales in 1H, which amounted to RM712.5 mil, was contributed by old projects.
Some of those key projects include Kyra 2 and Lumira 1 in Bandar Bukit Raja, Lagenda Garden in Bukit Jelutong, Ilham Residences in Elmina East and industrial land plots in Kota Elmina.
However, Loong added that the amount of unsold completed stocks and ongoing projects amounted to RM1.93 bil, which is slightly lesser than the RM1.99 bil in 1Q20.
The remaining launches for the year are mainly the landed products in Elmina West, Bandar Bukit Raja (Lumira 2), Serenia City, Bandar Ainsdale, Putra Heights and Elmina East.
“In view of the weak 1H20 earnings, we’re cutting our FY20-FY22 earnings forecasts by 67%, 34% and 32%,” she said. “Given the decent amount of sales in 2Q20, unbilled sales managed to increase slightly to RM1.54 bil from RM1.47 bil in 1Q20.”
Sime Darby Property’s share price reached 66 sen at 5.58pm on August 27, 2020, experiencing an increase of 1.55% with a market capitalisation of RM4.45 bil.
