Sime Darby Property’s City of Elmina to gain from better connectivity

Sime Darby Property Bhd (March 19, RM1.46)

Maintain add with an unchanged target price (TP) of RM1.85: We organised a full-day site tour for buy-side analysts and fund managers to Sime Darby Property Bhd’s (SD Property) prominent townships located in the Klang Valley.

We started our site tour with the biggest township in SD Property’s portfolio — City of Elmina. The project has a remaining developable area of 3,321 acres (1,343.9ha) and remaining gross development value (GDV) of RM19.7 billion. We believe that with the opening of the Elmina interchange, the upcoming Damansara-Shah Alam Elevated Expressway and potential connectivity via mass rapid transit, this township will be able to benefit from the better connectivity and attract more buyers in the future.

Our second stop was Bandar Bukit Raja (BBR), which consists of two mixed development townships, namely BBR 1 (1,513 acres) and BBR 2 & 3 (2,820 acres). BBR is located 30 minutes away from Port Klang, making it an ideal hub for international freight and logistics activities, in our view. SD Property is also partnering with Japanese conglomerate Mitsui International to develop a high-technology build-to-suit industrial park at BBR 2 & 3.

The Glades Putra Heights development spans 58 acres of land, with a remaining developable area of 17 acres. The Subang Alam light rail transit (LRT) station, the nearest LRT station to the project, is just 10 minutes’ walk away. The Glades is launching 15 units of strata bungalow (RM70 million GDV) and 72 units of strata condo (RM83 million GDV) in 2018.

Our last stop was the sales gallery of LOT 15 Subang Jaya City Centre, a serviced apartment project that consists of two towers with a total 361 residential units and three levels of retail units. The development covers an area of 2.2 acres, with a total GDV of RM269.2 million. Within two days of its official public launch on Nov 18 to Nov 19, 2017, the project achieved a strong 64% take-up rate for the 204 residential units offered for sale.

We value the stock based on a 50% discount to our estimate of its revalued net asset value, translating into a target price of RM1.85. The large discount versus an average of 35% we attach to the other property stocks under our coverage is to reflect the slower monetisation and longer gestation period of its considerable land bank. Our valuation does not include the potential value enhancement from the additional land bank of 20,602 acres under the Malaysia Vision Valley option agreements and land option agreements. — CGSCIMB Research, March 16

This article first appeared in The Edge Financial Daily, on March 20, 2018.

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