KUALA LUMPUR: RHB Research is upbeat on Sime Darby Property’s long-term strategy to strengthen the recurring income base.

       It had on Friday maintained its buy call with unchanged 75 sen target price, 14% upside and c.2% yield.

       “While we expect Sime Darby Property’s 3Q21 earnings to be weak due to the lockdown, the company is, so far, on track to hit its RM2.4bil sales target.

       “Overall, we are upbeat with management’s efforts to implement an in-house built seamless online sales process - that is important to close sales during and even after the pandemic, as well as the long-term strategy to strengthen recurring income stream,” it said in a note to clients.

       The company, it said, remains confident with RM2.4bil sales target given the RM1bil worth of bookings in hand thus far.

       “During our recent virtual meeting, management indicated that the company is on target for its property sales in July and August. Response for Jendela Residences remains strong, with a take-up rate of more than 80% for Phase 1. The show unit for Phase 2 was just opened last weekend, and in view of the strong buyers’ interest, Sime Prop should be able to rake in encouraging sales from this new phase,” it said.

       RHB Research also pointed out that Sime Darby Property has resumed the construction activities. Vaccination rate for all workers has reached more than 90% and construction activities for all projects should reach almost 100% in the coming weeks.

       It added that due to rising raw material costs, construction contracts for new project such as Jendela will likely build in some buffer to take into account the upside risk in construction costs.

       As for the Battersea Power Station development in London, phase 2 of the Battersea project started its handover since May and the process will continue until the handover of Phase 3A is to be concluded by mid-2022.

       “While management received some withdrawals, demand has gradually returned with Phase 2 and 3A, reaching a combined take-up rate of 80% (by units) from 69% as at December 2020.

       “The handover of both phases is expected to yield minimal profits given that the consortium has incurred a large impairment on the project in the previous year, and we understand that prices have not improved materially,” it said.

       Commenting on Sime Darby Property’s long-term strategy to strengthen recurring income base, RHB Research applauded management’s plans to set up a portfolio of investment properties so that the recurring income stream will mitigate the fluctuations in development earnings in the future.

       “Apart from building retail and commercial offices in the existing townships (Serenia City, Bandar Bukit Raja and Elmina), there are also plans to hold industrial properties and logistics warehouses in its Hamilton MVV and Elmina Business Park.

       “Thus far, the industrial land plots and semi-d factories in both projects are seeing good demand due to expansion by some local manufacturers. While Hamilton benefits from its close proximity to the airport, Elmina enjoys the spill-over due to depleting industrial land plots available in Shah Alam,” it said.