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Battersea JV a millstone around Sime Darby Property’s neck, say analysts

The Battersea Power Station project is a joint venture between Sime Darby, SP Setia, and EPF which acquired the decommissioned power plant for 400 million pounds in 2012. (Sime Darby Website pic)

PETALING JAYA: Research analysts are in consensus that Sime Darby Property Bhd’s (SDP) Battersea Power Station project in the UK will remain a significant drag on its future earnings, based on its second quarter results (Q2 FY2023) .

Kenanga Research said although SDP’s first half results (H1 FY2023) released yesterday had met their expectations, it disappointed the market. H1 net profit fell 15.85% to RM131.74 million from RM156.56 million last year.

For Q2 FY2023, net profit fell 32% to RM71.07 million from RM104.99 million a year earlier on the back of higher share of losses from its joint ventures (JVs). Revenue rose to RM688.92 million from RM615.61 million a year ago.

Losses from its Battersea JV widened to RM46.7 million for the first half ended June 30 compared with RM7.1 million in losses for H1 FY2022, due to higher interest charges.

“SDP’s Battersea Power Station continued to fall deep into losses (-520%) no thanks to aggressive interest rate hikes in the UK as well as the softening of property demand there,” its analyst Clement Chua said.

The research house said in a note that the Battersea JV will likely remain in the red on the back of higher overall business expenses fuelled by the severely tightened monetary policies in the UK.

“That said, the group believes that cost pressures may ease over time, particularly with more commercial leases being signed there and new apartment launches demonstrating encouraging take-up,” Kenanga Research said based on an analysts’ briefing.

In 2012, Sime Darby Bhd, SP Setia Bhd, and EPF established Battersea Project Holding Company Ltd and acquired the Battersea power plant for 400 million pounds. Sime Darby and SP Setia each hold a 40% stake while EPF holds the remainder.

Kenanga said as at H1 FY2023, SDP registered unbilled sales at RM3.8 billion versus RM3.6 billion as at Dec 31, 2022, and 34% of the unbilled sales will be recognised in FY2023.

“The remaining 66% is expected to be recognised in the next three financial years. Going forward, Sime Darby Property looks to add more industrial products into its mix, which are made up mostly of residential projects, landed or high-rise,” it added.

The research house maintained its “market perform” call, raising its target price (TP) by 20% to 66 sen from 55 sen to “reflect the improved sentiment towards property stocks of late”.

Meanwhile, CGS-CIMB Securities said the downside risks include delays in planned Battersea launches that could result in missing target sales, and wider-than-expected share of losses from the Battersea project JV could drag overall net earnings for SDP.

The research house made no changes to its earnings forecast and TP of 87 sen, and reiterated its “add” call on the back of strong demand for SDP’s products, premium branding, and larger land bank in the Klang Valley plus a strong balance sheet position.

The group had declared its first interim dividend of one sen per share amounting to a payout of RM68 million.

SDP’s shares were unchanged today at 69 sen, valuing the group at RM4.7 billion.

Source: FMT News

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