Valuation now at attractive level, says Affin Hwang

PETALING JAYA: Affin Hwang Capital sees attractive valuation for Sime Darby Property Bhd, whose share price fell 20% to RM1.20 from its reference price of RM1.50 on its first day of listing last Thursday.

“We believe the valuation is now attractive, at a 63% discount to RNAV/share of RM3.22, unjustified given that Sime Darby Property is the largest property developer in terms of land bank,” it said in its report yesterday.

Affin Hwang Capital compared the valuation with other property stocks under its coverage, which are trading at average discount of 40% to RNAV.

It highlighted the property developer’s well-located land bank in Peninsular Malaysia measuring a total of 20,763 acres with a gross development value of RM100.4 billion.

“It has the largest domestic landbank among the Malaysian property developers and most of the land bank was acquired previously at low historical cost,” Affin Hwang Capital said.

However, it is concerned about the company’s earnings, which have been supported by gains from the sale of investment properties, land and subsidiary/ associate stakes.

Thus, earnings sustainability is dependent on management’s ability to generate recurrent earnings from property investments (target 10% of operating profit by 2022) and expand property development income.

Affin Hwang Capital said the presence of Tan Sri Abdul Wahid Omar as the nonindependent non-executive chairman will ensure the execution of management’s plan to accelerate the development of its landbank and monetise some of its assets.

Wahid, who is also chairman of Permodalan Nasional Bhd (a major shareholder of Sime Darby Property), was instrumental in the restructuring of UEM Group, Telekom/Axiata and Maybank previously, to enhance long-term shareholders value and improve operating efficiency.

“His presence on the board of directors in Sime Darby Property and not on the board of directors of Sime Darby Bhd and Sime Darby Plantation Bhd indicates his focus on driving the restructuring of Sime Darby Property,” said the research house.

Affin Hwang Capital upgraded its call on the stock to “buy” from “hold” on an unchanged target price of RM1.61.

On Bursa Malaysia yesterday, Sime Darby Property’s share price fell by eight sen or 6.67% to close at RM1.12 with a total of 22.48 million shares traded.