Sime Darby Bhd
(Aug 4, RM8.79)
Maintain sell with a target price (TP) of RM7.65: We organised a half-day site visit to Sime Darby Bhd’s property township projects and land banks in the southern part of the Klang Valley (namely Nilai Impian, Chemara Hills, Bandar Ainsdale and Planters’ Haven), to gauge the property development potential there.

The Nilai Impian township project sits on 1,808 acres (732ha) of land, with a total gross development value (GDV) of RM4.5 billion. We understand that Sime Darby aims to transform Nilai Impian into a commercial gateway for Nilai town, with 142 acres of land bank there being allocated for future development of commercial properties, supported by hotels, offices, retail mall, educational institutes and a medical centre. Given the strategic location and reasonable pricing range, we believe projects in Nilai Impian will continue to enjoy good take-up comprising 562 acres of freehold township with a total GDV of RM2.2 billion (which could increase to RM3 billion).

We understand that Bandar Ainsdale is well positioned to become the new gateway for Seremban due to the new KTM Komuter station and recent completion of the New Seremban Interchange (which would divert traffic to Bandar Ainsdale, hence boost economic activities there.

The recent changes in affordable housing policy (which now requires 50% of new houses to be priced below RM400,000 per unit) and the increase in bumiputera ownership quota (from 30% previously to 50%) for new residential schemes in Negeri Sembilan will have minimal impact on Sime Darby’s property sales there, given that some of its existing property township projects already comprise about 50% bumiputera buyers.

Catalysts would be higher-than-expected fresh fruit bunch (FFB) output growth, crude palm oil prices strengthening further, and the recovery in the property demand sentiment.

Risks to our call would be a sharp fall in FFB output and/or palm product prices at the plantation division, prolonged weak demand for mining equipment, and delay in property launches.

Among the negatives are: i) cooling economic activities in China and Australia may have an adverse impact on Sime Darby’s earnings and ii) overseas expansion risks.  

Sime Darby’s positive point is its strong balance sheet.

We maintain our “sell” recommendation, with an unchanged sum-of-parts-derived TP of RM7.65. — HLIB Research, Aug 4

This article first appeared in digitaledge Daily, on August 5, 2015.