KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB research) said Sime Darby Property Bhd is the best proxy to the industrial segment, with more than RM15 bilion in remaining gross development value.
It is the largest industrial developer with very strategic locations close to Port Klang and the upcoming East Coast Rail Link line stations.
HLIB research has a "Buy" call on the stock with a higher target price of RM1.05 from 81 sen a share previously.
The research firm said as global manufacturers seek to de-risk from rising geopolitical tensions, the relocation of their manufacturing base should benefit geopolitically neutral Malaysia.
Additionally, the current government's focus in attracting foreign investment is an added impetus that will further fuel foreign direct investment flow.
HLIB research sees an increase in industrial contribution to Sime Darby Property's sales, from 0 per cent in 2019 to 33 per cent of its nine month of financial year 2023 sales.
The industrial segment has a higher margin and also a faster construction time compared to residential.
HLIB research said green shoots are emerging for residential landed in greater Klang Valley, evident from the improving and strong take-up rates enjoyed by landed township developers not only in Klang Valley but also in the fringe areas of Negeri Sembilan.
It anticipates rising demand and house price appreciation in the residential landed segment that could sustain for years to come supported by the growing number of people working in KL;limited supply of landed homes given increasingly scarce land supply in KL; more benign competition with fewer developers in this space; and improving road and railway infrastructure connecting city centre to Selangor and Negeri Sembilan. Landed residential is Sime Darby Property's forte, with 94 per cent of the group's remaining GDV in the greater Klang Valley region.
HLIB research said Sime Property is in the right space at the right time, and more importantly, the group also has good execution track record and well-planned strategies, which should allow it to capitalise and ride on the industrial segment upcycle.
Firstly, the group is diversifying and adding industrial to its product mix in addition to residential landed and high-rise, essentially giving it three channels of growth running in parallel.
Secondly, the group is expediting the pace of landbank activation through efforts such as developing a fund management platform to tap into third party funds and external expertise, building solar farms and disposing non-core lands. "With the final hurdle from labour shortage now resolved, we think that the group is ready to go into the market more aggressively moving forward," HLIB research said.