KUALA LUMPUR: Sime Darby Property Bhd (SDP) is aiming to derive 30% of its net profit from recurring income in the medium term.

       These are part of its ongoing efforts and plans to diversify its business away from purely property development to a sustainable real estate development company by the year 2025.

       In its initiation report on SDP, Hong Leong Investment Bank Research (HLIB Research) said it sees good take-up rates under the company’s property investment segment.

       “The nine properties owned are valued at RM1.7bil while having an average occupancy of 75% and 80%.

       In spite of the ongoing saturated office market supply, SDP continues to achieve good take up rates that had averaged circa 90% in the financial year 2020 as its buildings are well located and supported by single anchor tenants,” it said.

       Meanwhile, HLIB Research also said SDP plans to expand further into industrial and logistics development through a built-to-suit model, rather than outrightly selling the plot of land or completed product.

       This is anticipated to bolster its recurring income moving forward, it said.

       To help achieve this, the company had recently also entered into shareholder’s agreement with the Logos Property Group to set up a 51:49 joint venture company.

       “We are impressed by the strategic move by SDP to channel its land bank into this growing sector, partnering with a renowned international player,” it said.

       Meanwhile, the research house said SDP is also poised to benefit from any rebound in the property market, given that it has a sizeable landbank inventory.

       The company is currently the biggest listed property counter by landbank size and a rebound in the property market could see it gain since many of its pipeline developments are well located.

       “SDP is currently the largest listed property counter in Malaysia in terms of land bank size with an astonishing 20,000 acres of land bank.

       Within the 20,000 acres of land bank, 13,300 acres are located within existing 24 active townships as well as integrated and niche developments with an estimated RM89.3bil worth of gross development values,” it said.

       “We initiate coverage on SDP with a ‘buy’ recommendation and target price of 78 sen based on a 60% discount to its estimated revalued net asset value of RM1.95,” the research house said.

       It also noted that SDP’s key strengths are its exposure towards township developments which are well connected, as well as access to sizeable land banks, among others.

       SDP also has a healthy balance sheet with a net gearing of 0.32 times, HLIB Research said.