Latest news with #SimeProp
The Star
a day ago
- Business
- The Star
Property portfolio, data centres to lift SimeProp
CGSI Research said there would be a number of income streams for SimeProp. PETALING JAYA: Sime Darby Property Bhd 's (SimeProp) accelerating growth on the back of recurring income from the significant expansion of its investment property portfolio has CGS International Research (CGSI Research) reiterating its 'add' call on the stock with an unchanged target price of RM1.90. CGSI Research said there would be a number of income streams for SimeProp, including the recent acquisition of two double-storey logistics warehouses in Bandar Bukit Raja in Selangor that cost RM232mil. The research house said it estimates that the acquisition could contribute between RM7mil to RM8mil in net profit annually, assuming there is a 7% net property income yield. 'Furthermore, we gathered from management during the first quarter (1Q25) results briefing that the group has retained some of their commercial and industrial units to lift rental income,' the research house said. Among them is the KLGCC Mall in Kuala Lumpur that is set to open to the public in the second half of this year (2H25), further boosting the group's portfolio of retail assets. The property developer's commencement of built-to-lease data centres at Elmina Business Park in Selangor is also set to boost recurring income from next year (FY26) onwards. 'Phase one and two of the data centre assets are on track for completion by end-FY26 and 1H27, respectively. We project the investment property portfolio to contribute about RM119mil in net profit by FY27, making up 11% of the group's net profit,' CGSI Research said. However, the research house expects SimeProp to be negatively affected by the 6% sales and service tax (SST) on construction services, as it directly leads to higher construction costs for its commercial and industrial products. On a more promising note, construction as well as rental and leasing services for residential buildings, which account for over 50% of SimeProp's sales are exempted under the expanded SST, thus limiting the overall impact. This could result in SimeProp's profit margins remaining intact in the short term. 'Nevertheless, we do not rule out the risk of softer sales in its commercial and industrial segments as elevated property prices may temper buyer sentiment, potentially leading to deferred purchases or weaker property demand,' CGSI Research said. The research house said following a weaker 1Q25 for SimeProp, it now continues to anticipate stronger quarterly earnings for the group for the rest of FY25 as progress billings pick up pace. 'The valuation has also reverted to a palatable FY26 price-earnings of 15 times, which we deem compelling given the encouraging FY25 to FY27 earnings growth trajectory,' it said. The research house added downside risks include wider losses from the Battersea Power Station development in Britain and slower property launches, while re-rating catalysts were stronger sales growth and further expansion of SimeProp's data centre business. SimeProp's shares closed at RM1.42 in yesterday's trading.
The Star
12-06-2025
- Business
- The Star
Developers' operational costs expected to rise
Maybank IB said the SST on construction services from July 1, 2025 will add pressure to property developers' margins for ongoing (sold) projects. PETALING JAYA: Property developers' operational costs could rise following the government's move to impose a 6% sales and service tax (SST) on construction services. Effective July 1, 2025, construction services for infrastructure, commercial and industrial buildings will be subject to a 6% service tax if the taxable value exceeds RM1.5mil annually. However, exemptions are provided for residential buildings, public utilities related to housing, and non-reviewable contracts, which will enjoy a 12-month grace period from the effective date. Additionally, business-to-business (B2B) relief will be available to prevent double taxation. According to Maybank Investment Bank Research, the SST on construction services from July 1, 2025 will add pressure to property developers' margins for ongoing (sold) projects, as they might have to absorb the additional cost for commercial and industrial builds. It pointed out that there is currently no guideline on how it applies to contracts entered into before July 1 but billed thereafter, or whether it is only applicable to new contracts signed after the SST implementation date. 'As most contracts incorporate a regulatory change review clause, developers are expected to bear this SST, rather than contractors,' the research house said. It believes that developers are likely to pass on these additional costs to buyers (those unsold stock and future projects) to avoid margin erosion stemming from rising construction costs. However, a slower economic growth trajectory and weak market demand could constrain pricing power. 'Developers engaged in data centre (DC) construction, including Eco World Development Group Bhd (EcoWorld Malaysia) and Sime Darby Property Bhd (SimeProp), could also see increased expenditure, potentially reducing their internal rate of return,' it said. Maybank IB estimates a four-sen reduction in EcoWorld Malaysia and SimeProp's revised net asset value or RNAV estimates due to the 6% additional costs associated with their DC constructions. The research house added that with a strategic emphasis on generating recurring income from investment properties in recent years, such as malls, the 8% SST on rental income would be borne by tenants, which could restrain developers' leverage for rental increment negotiations. 'We maintain our earnings forecasts, pending clarity. Maintain 'neutral' on the property sector. 'Our buys are Eco World International Bhd , S P Setia Bhd and EcoWorld Malaysia,' it said. The research house highlighted risks to its calls including weaker-than-expected property sales dragged by weaker economic outlook, policy risks, stricter lending measures by the banks, higher-than-expected liquidated ascertained damages compensation following the latest ruling by the Federal Court, and rising building material costs and labour issues.
The Star
30-05-2025
- Business
- The Star
SimeProp bullish on 2025 after strong 1Q
PETALING JAYA: While keeping a positive outlook for 2025, Sime Darby Property Bhd (SimeProp) remains cautious towards the degree of worldwide volatility beyond this year, especially emanating from the trade tariff situation, and is concerned about its wider impact. Group managing director and chief executive Datuk Azmir Merican remarked that volatility is 'never a good situation', before saying that it is helpful to understand how finalised tariff decisions can affect all parties involved, since Malaysia has substantial business relations with the United States, China and Asean. 'That said, we are rather optimistic for 2025, but it is when we look towards 2026 and beyond, we wonder whether future launches and lending will be affected, not as a primary impact on our properties but as part of a secondary round of impact,' he told a virtual media briefing yesterday following the release of its first quarter of financial year 2025 (1Q25) results. He acknowledged that SimeProp, being a property developer, is highly dependent on the overall economy doing well, which in turn influences investor confidence. Nevertheless, Azmir reiterated the group's bright prospects for the near and medium term, especially throughout 2025. Despite recording a marginally lower net profit year-on-year (y-o-y) of RM118.4mil for 1Q25 as compared to the corresponding period a year ago, Azmir emphasised that 1Q24 was the group's strongest quarter thus far, and the result from 1Q25 was therefore encouraging. This was underpinned by the fact that net profit margin had improved from 12.6% to 13.6% y-o-y in 1Q25. He pointed out that 1Q25 profitability was supported by a turnaround in the investment and asset management segment, coupled with profit from compulsory land acquisition, which offset the lower segment results from the property development segment and leisure division. Having launched a total gross development value (GDV) of RM656.5mil in 1Q25, from a goal of RM4bil GDV to be put in place this year, Azmir said SimeProp will launch the remaining GDV of RM3.3bil across the industrial, residential and commercial segments, with respective shares of 30%, 59% and 11%. The group has a sales target of RM3.6bil for 2025. Of interest, industrial products contributed to half of the RM927.5mil sales figure achieved by the group in 1Q25, with residential high rise products contributing in total 27% of sales, while residential landed properties made up 16%. Commercial products, meanwhile, contributed to 7% of sales, driven by sustained demand across our maturing townships. Azmir observed that sales remained concentrated within central and Greater Klang Valley, with a notable increase in contribution of 20% from Negri Sembilan. Explaining the relatively larger share of sales contribution from the group's industrial segment, chief operating officer for township development Apollo Leong said in the second half of 2024, SimeProp launched nine phases of industrial properties, compared to only three phases of landed residential developments. 'The big jump in sales contribution by industrial properties is due to the timing of their recognition, although we do have a heavy pipeline of industrial properties as well,' he said. As such, Azmir maintained that residential properties would catch up to industrial products with regards to sales contribution, although with the group also focusing on industrial launches, he is expecting the latter segment to yield more than a 30% share in sales by end of 2025. Meanwhile, commenting on its Battersea Power Station (BPS) project, he said the take-up rate for the residential component of Phase 3B (Electric Boulevard) had increased to 74%, representing a 6% quarter-on-quarter growth, while the office leasing rate remained at 45%. He noted that footfall at BPS also grew a healthy 8% y-o-y in 1Q25, before remarking that since its opening in October 2022, the location has welcomed over 30 million visitors. 'More importantly, we have secured detailed planning approval and consent from Wandsworth Council for Phase 3C of BPS, comprising a mix of residential, retail, community and leisure development, with anticipated completion in 2029,' said Azmir. Elaborating on the group's strategy for BPS going forward, he said leasing enquiries for the office building has been strong, and rental rates have been encouraging. However, he said SimeProp is more keen to take in tenants for longer tenures, with the aim that they can commit for up to 10 years. 'Since we have leased out almost half the building, and because securing long tenancies remains our goal, we are now selective with our prospective tenants. 'We would prefer they commit for the long term, because then we can have an idea of how they can provide stabilised rental income for the group,' said Azmir. On the other hand, he said rental rates in the United Kingdom have shot up faster than expected, which has become a double-edged sword, because while this means there is a higher likelihood that tenants will be able to pay rental rates above the group's projections, it could also represent the fact that it may take a longer time for space to be taken up. For the rest of 2025, Azmir reported that the company is guiding for a gross profit margin of 20% to 25%, and a debt-to-equity ratio of less than 0.5 times by balancing active working capital and investments for future growth. It is also aiming to ensure optimal asset turnover by maintaining at most 10% of completed stocks. 'We see strong growth from the property development segment across 26 townships, driven by a well-diversified mix of residential, industrial and commercial products. 'Concurrently, our retail segment is also growing, supported by two wholly-owned malls, with a combined net lettable area (NLA) of approximately 608,000 sq ft and the upcoming KLGCC Mall with a NLA of about 240,000 sq ft,' he said. The group also has an existing land bank of about 11,400 acres with a GDV exceeding RM100bil to be unlocked, as it is also expanding into the high-growth data centre asset class with two hyperscale data centres at Elmina Business Park spanning across 126 acres, on top of a secured total lease value of RM7.6bil over a period of 20 years.
The Star
20-05-2025
- Business
- The Star
SimeProp's industrial properties to lift earnings
PETALING JAYA: Sime Darby Property Bhd (SimeProp) has achieved 100% take-up for the latest instalment of its linked homes in The Nine, Elmina Green, development located in Shah Alam, Selangor. In a statement, the developer said the latest launch saw all 192 double-storey linked homes snapped up, reinforcing the strong demand observed during a March preview. Targeted for completion in June 2026, The Nine, Elmina Green has a gross development value of RM198.2mil. Built-up areas for the homes range from 2,000sq ft to 2,342sq ft, with prices starting from RM921,888. Meanwhile, RHB Research said in a report that SimeProp's earnings potential from the upcoming lease of two data centres in Elmina Business Park is under-appreciated by the market. The research house noted that management also strengthened its investment-property portfolio recently by acquiring the remaining stake in two modern logistics warehouses that are worth RM232mil, potentially paving the way for a real estate investment trust (REIT) listing in one to two years. 'The REIT should have a high concentration of good quality industrial properties, which should garner a premium valuation,' RHB Research said. Thus far, SimeProp's Data Centre 1 project is on track to be completed in the third quarter of 2026 (3Q26) while the construction work for Data Centre 2 should be up for tender in the second half of this year with completion in 2027. 'While the financing plan for Data Centre 2 has yet to be firmed up, we highlight that SimeProp recently successfully raised a RM800mil sukuk at very attractive rates averaging 4.02% with a tenure of seven to 15 years, and the sukuk was 6.74 times oversubscribed,' the research house said. RHB Research noted that the funds raised would mainly be used for long-term working capital to grow the industrial, logistics and data centre portfolio. 'We do not discount the possibility that SimeProp may look to gear up further to grow its investment-property portfolio. Based on the 2024's financials, the company has debt headroom of RM3.7bil before it hits 0.6 times net gearing (currently at 0.24 times), which should not be a big concern in our view as a REIT listing is always a wild card,' the research house said. RHB Research said the 20-year leases of two data centres are worth RM7.6bil in total. Assuming the group will own 100% of both, the research house estimates that the leases for the data centres could contribute about RM150mil to RM160mil a year after interest and tax in the initial years, boosting net profit by more than 20% from FY28 onwards. The leases are also expected to grow progressively over a 20-year period due to the step-up feature. Currently, SimeProp also has a total of 1.48 million sq ft of net lettable retail area, including the upcoming KLGCC Mall. 'However, its industrial property portfolio is more sizeable, as it currently includes the two logistics warehouses in Bandar Bukit Raja (RM232mil), two hyperscale data centres (around RM6bil), as well as Metrohub 1 and 2 in Bandar Bukit Raja, Selangor, where SimeProp has a 27.4% interest,' RHB Research said. The research house added the group's seven industrial park projects that it currently has in Selangor, Negri Sembilan and Johor would suggest that it will have plenty of opportunities to build its industrial portfolio.
