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KUALA LUMPUR (Feb 5): The implementation of the IAS 23 borrowing cost accounting standard in Sime Darby Property Bhd's financial year ending Dec 31, 2021 (FY21) is likely to cut its earnings for FY21 to FY22 by 10% to 14%, according to CGS-CIMB Research.
In a note to clients, analyst Ngo Siew Teng said that she is adjusting her forecasts on Sime Darby Property's FY21 to FY22 accordingly. As it stands, she is forecasting a net profit of RM273.8 million for FY21 and RM236 million for FY22.
Ngo explained that under the new accounting standard, borrowing costs will not be capitalised for unsold units, regardless of whether they have been completed or are still under construction. The mandatory date to switch to the accounting policy is for financial statements on annual periods beginning on after July 1, 2020.
As at the end of September 2020, Sime Darby Property's total unsold units were valued at RM1.9 billion, from the RM2 billion seen at the end of December 2019.
At the same time, Ngo opined that Sime Darby Property's new sales target for FY21 is likely to be higher compared with FY20's new sales target range of RM1.4 billion to RM1.6 billion given the more aggressive planned launches to capitalise on the ongoing Home Ownership Campaign.
"For FY21F, the group is looking to roll out (about) RM2.5 billion GDV (gross development value) worth of new projects vs RM1.4 billion in FY20.
"Out of the RM2.5 billion in launches, the bulk will be residential landed properties (43.3%), followed by residential high-rise (32.2%), statutory housing (11.9%), industrial properties (11.5%) and commercial (1.1%).
"By price point, we gather that 31% of its FY21F target new launches will likely come from properties priced RM300,000-RM499,999, 52% priced RM500,000-RM749,999, 13% priced RM750,000-RM1.5 million and the remaining 4% above RM1.5 million," Ngo said.
While maintaining her "add" call, Ngo cut her target price (TP) on the property developer to 84 sen, from 85 sen previously. This new TP is still based on a 0.6 times FY21 price to book value (P/BV), which is one standard deviation below its three-year average P/BV.
"We remain positive on Sime Darby Property given: (i) its solid balance sheet with a lower net gearing level of 0.25x vs peers' 0.3x; (ii) strategic land bank located in close proximity to the East Coast Rail Link and Malaysia Vision Valley 2.0 in Negeri Sembilan; and (iii) its massive land bank to cater to future demand. These remain its rerating catalysts, in our view," she viewed.
Shares in Sime Darby Property fell five sen or 0.85% to 58 sen at 12.13pm, valuing it at RM3.98 billion. It saw 451,700 shares done.
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