KUALA LUMPUR (May 24): Shares of Sime Darby Property Bhd (KL:SIMEPROP) surged to a fresh six-year high on news of the developer’s entry into the data centre space while analysts scrambled to raise their target prices.
SimeProp rose as much as 12% or 14 sen to RM1.30, its highest since February 2018. At 9.05am, the stock was trading at RM1.25, valuing the company at RM8.5 billion. The counter was also highly active with more than 11 million shares changing hands.
More than a dozen analysts covering the stock raised their target prices to also account for the stronger-than-expected results announced on Tuesday. The consensus 12-month target price is now 45% higher at RM1.42 from a week ago, according to Bloomberg.
“The deal is likely to lift the profile and land prices at its Elmina Business Park,” said RHB Investment Bank. Further, the research house flagged the possibility of more data centres in Elmina as well as other industrial parks developed by SimeProp.
SimeProp will likely to tender out the construction contract for the project and finance any upfront costs from its balance sheet given the low gearing, RHB IB noted. A data centre may generate rental yield of around 8%, which means annual revenue of RM8 million for SimeProp, it added.
Shares of SimeProp have more than doubled so far this year, outperforming most of its peers in the property sector, thanks to strong housing demand and the company’s diversification into industrial properties, which offer faster billings and higher margins.
Despite the rally, a large majority of analysts tracking Sime Darby Property remain broadly bullish on further upside. Out of 15 analysts, 11 have recommended “buy” calls, while the remaining four assigned “hold” ratings, with no “sell” calls.
The data centre will add to SimeProp’s investment property portfolio and grow its recurring income stream, Kenanga Investment Bank said. However, contribution from the new investment will be beyond the research house’s current forecast that only extends to FY2025.
On Thursday, Sime Darby Property announced plans to construct and lease out a hyperscale data centre at its Elmina Business Park in a deal valued at RM2 billion. The project is expected to begin in the second quarter of this year and aimed for completion by 2026.
Upon completion, the group will sign a 20-year lease (initial term) with Pearl Computing Malaysia Sdn Bhd, a wholly-owned unit of Singapore-based Raiden APAC Pte Ltd. The lease includes options for two additional five-year terms.
On Monday, SimeProp reported that net profit for the first quarter ended March 31, 2024 (1QFY2024) more than doubled to RM123.58 million. Revenue surged 43% year-on-year to RM978.69 million on the back of higher sales and progress billings.