Simeprop’s Rm618mil Kapar land buy seen as fair

PETALING JAYA: Sime Darby Property Bhd’s (Simeprop) purchase of 949 acres of agricultural land in Kapar, Selangor, from Sime Darby Plantation Bhd for Rm618mil or RM15 per sq ft is fair, given its close vicinity to its Bandar Bukit Tinggi project.

Maybank Investment Bank Bhd (Maybank IB) said Simeprop’s move to exercise its call option to buy the land was sooner than expected.

The research house now expects the property developer to seek a three-year extension to exercise similar options with the plantation group for parcels of land in places like Kulai, Sepang, Sungai Kapar, Carey Island, Lothian, Byram, Negri Sembilan and Kedah to avoid pressuring its balance sheet unnecessarily in a rising interest-rate environment.

“Judging from the location (near its Bandar Bukit Raja project) and Simeprop’s focus on industrial development as one of its key growth engines going forward, we believe the land could be mainly earmarked for industrial properties,” said Maybank IB in a report.

It expects Simeprop’s net gearing to increase to 0.36 times (from 0.3 times as at end-june 2022) after the completion of the deal and estimates the developer to have a maximum internal net gearing target of 0.5 times.

Hence, Simeprop could borrow up to Rm1.9bil before reaching its internal net gearing target.

Maybank IB maintained its earnings forecasts and target price (TP) of 54 sen (0.4 times financial year 2023 price-to-book value) on Simeprop.

Kenanga Research, meanwhile, said with three months left for Simeprop to exercise its call option with Sime Plantations to expire, the former could undertake more land banking deals.

Kenanga Research noted that in totality, Simeprop has 38 call option agreements struck with Sime Darby Bhd (29 options) and Sime Plantation (nine), which would all be expiring in November 2022 if not mutually agreed to be extended for another three years.

“Hence we do not discount further land banking from these call options over the next three months.

“Note that Simeprop has the capacity to acquire another Rm1.25bil worth of land before hitting its internal net gearing limit of 0.5 times,” Kenanga Research said.

The deal will see Simeprop’s total land bank increase by 7% to 13,900 acres while its total remaining gross development value (GDV) would rise by 8% to Rm112bil (assuming Rm8.45mil of GDV per acre for the new plot).

Kenanga Research has an “outperform” call on Simeprop and maintained its TP of 55 sen a share, based on an unchanged 65% discount to its revalued net asset value.