PETALING JAYA: Sime Darby Property Bhd
(SimeProp) has garnered mostly positive reviews from property sector analysts, having posted a record breaking performance for the first half of 2024 (1H24).
A number of research houses also highlighted an issue that might concern investors which was the share of the company’s joint-venture loss of RM87.9mil in the second quarter of 2024 (2Q24).
TA Research said SimeProp’s larger loss was due to the adoption of International Financial Reporting Standards or IFRS 17.
In a note to clients yesterday, the research house said: “With an initial occupancy rate of just 20%, the accounting standards required SimeProp to recognise the full financial impact for the entire contract period upfront, leading to a significant loss this quarter.”
The research house said the company had stressed that it took a conservative approach by absorbing the bulk of the accounting impact in this quarter, and as a result, it did not anticipate any substantial financial implications for the remainder of the year unless there are significant changes in occupancy rates or macroeconomic conditions.
“The focus is now on improving tenant occupancy, which is expected to mitigate any future financial effects.
“Recent positive developments, like the interest rate cut in the United Kingdom, also suggested a more favourable outlook for the Battersea Power Station (BPS) project,” said the research house.
On that note, RHB Research said SimeProp’s clarification on the 2Q24 losses incurred by the BPS project should alleviate market concerns.
Looking ahead, it said given the absence of a material negative surprise from the BPS, share price will be driven by stronger earnings in the second half of the year (2H24), from the company’s confidence to achieve higher property sales, as well as ongoing negotiations with more data centre (DC) players to grow the new business over the longer term.
RHB Research opined that SimeProp’s commitment to grow its investment and asset management segment would boost investor confidence in the company’s serious strategy to build its DC-related real estate business.
“The company mentioned that some other areas have also been explored to potentially set up DC facilities. We believe news flow on this front should continue to excite the market given the company’s track record in securing a technology giant such as Google,” the research house pointed out.
Elsewhere, it said the Elmina Lakeside Mall, which holds a 98% committed lease rate at opening, also reflected the company’s strong execution ability.
“While KL East Mall has just achieved 96% occupancy rate after three to four years since its opening, it is now providing 6.5% to 7% yield. Hence, given the high occupancy rate for Elmina Lakeside Mall at inception, the mall should be able to hit a similar yield within a shorter period of time,” it added.
Hong Leong Investment Bank (HLIB) Research said although the BPS widening losses were unexpected, this was offset by Sime Darby Property’s resilient performance on the domestic front.
It forecast the company’s performance to overachieve consensus estimates, highlighting that the group is likely to deliver earnings that surprise on the upside as the impact from the better margin and faster billings of its industrial products are starting to filter through to its earnings.
“This is evident now from the robust 1H24 operating performance when the group charted its highest ever 1H24 revenue, operating profit and sales post-2017 demerger,” it said.TA Research, RHB Research and HLIB Research had maintained their “buy” calls on the counter, with RHB Research and HLIB Research holding to a target price of RM2 and TA Research keeping it at RM2.05.
