SIME DARBY - JV with CMA to develop shopping mall

News   Entered into a 50:50 joint venture with CapitaMalls Asia (CMA) to develop 5.56 acres of freehold commercial land in Taman Melawati, Kuala Lumpur into a shopping mall.

Once completed, the shopping mall will have a total lettable area of c.635,000 sq ft. Development cost is RM500.0m with a targeted completion date of 2016.

We understand that SIME’s contribution to the JV is only the land, so there is no cash outflow on SIME’s part. Working capital requirements will be financed by CMA. 

Comments  Overall positive on the deal because it involves no cash outlay on SIME’s part. Additionally, there are no other full-fledged malls in the area. 

It will also be a good source of recurring income once the mall is completed. However, at this juncture, it is too early to ascertain the contribution from the mall. 

Taman Melawati is only a 20-minute drive from KLCC. It is sited along arterial MRR2 and is accessible via DUKE Expressway and Ampang-KL Elevated  Highway (AKLEH) (Refer overleaf).

Once completed, the mall will serve a ready catchment population of around 800,000 people located within a 10-minute drive. The shopping mall will also be the first large “one-stop” shopping mall in the area.

Outlook  The project will enhance SIME’s ongoing and future projects in Taman Melawati, which include Gaya Apartments, Casa Rimba (superlink homes), 3 Residen (condominium), Quarza (service apartments), bungalows, town villas and an office building. 

Forecast  FY12E-FY13E earnings are left unchanged at RM4.50b-RM4.67b as the shopping mall will only be completed by FY16E-FY17E. Significant earnings  impact  to  only  come  earliest  in  FY17EFY18E as it may take 1-2 years to fully lease out all the shopping mall space.

Rating  MAINTAIN OUTPERFORM

Its valuation of 15.2x Fwd. PE is still attractive as compared to IOI (16.4x) and KLK (17.5x). We think current discounted unjustified given its status as the biggest market cap planter with superior liquidity. 

Valuation   Maintaining our TP of RM11.60 based on Sum-OfParts. (Refer overleaf).

Risks  Sustained decline in CPO prices.  

Source: Kenanga