SIMEPROP: Property Developer Exceeds Expectations on Cost Control, Rating Upgraded

A leading property developer has reported a robust set of numbers, with its third-quarter (3QFY25) net profit reaching RM168.2 million, marking a significant 31.2% year-on-year (YoY) and 17.2% quarter-on-quarter (QoQ) increase. This performance comfortably surpassed both internal and consensus expectations. For the nine-month period (9MFY25), group net profit stood at RM430.2 million, a 4% YoY increase, accounting for approximately 81% and 78% of the full-year estimates from the investment bank and market consensus, respectively.

Performance Review

The stellar earnings disparity primarily stemmed from higher margins achieved across various segments. The gross margin notably rose to 34%, exceeding its guidance range of 20-25%. This improvement was attributed partly to the disposal of non-core landbank, a stronger performance from its Investment & Asset Management (IAM) and leisure segments, higher margin industrial products, and sustained cost efficiencies across operations.

Despite the overall strong showing, the property division’s revenue for 9MFY25 experienced a 5% YoY decline to RM2.94 billion, with operating profit also seeing a similar reduction. This was primarily due to lower revenue contributions from industrial and residential landed products, alongside reduced proceeds from non-core land sales. However, the IAM segment demonstrated significant growth, with revenue increasing by 28.4% YoY to RM123.1 million, driven by improved retail performance following the opening of Elmina Lakeside Mall and lease reversion from KL East Mall, further bolstered by additional rental income from a warehouse acquisition.

Future Outlook and Analyst View

The company continues to exhibit strong sales momentum, having launched projects worth RM2.5 billion in Gross Development Value (GDV) year-to-date. It has secured pre-sales of RM3.4 billion, already accounting for 93% of its FY25 sales target of RM3.6 billion, and is poised to surpass this target. Unbilled sales stand at a healthy RM4.1 billion, providing clear revenue visibility for the next three years. Industrial projects were the largest contributors to sales, followed by residential landed and high-rise developments. Analysts have adjusted FY25/26/27 forecasts upwards by 10%/8%/3% respectively.

Given the strong sales momentum and improving earnings quality, the investment bank has upgraded its rating for the stock to Outperform from Neutral. Concurrently, the target price has been nudged higher to RM1.55 (from RM1.40), reflecting its attractive valuation and strong operational performance.