KUALA LUMPUR (Jan 26): Sime Darby Property Bhd's (SimeProp) deal with Lagenda Properties to venture into the affordable homes sector could allow the group to explore the viability of the segment, potentially leading to future developments in other states, said Hong Leong Investment Bank (HLIB).

In a company update note on Friday, the research house expressed pleasant surprise at this development, considering it as yet another effort by SimeProp to activate its non-core land bank.

"This project marks SimeProp's first foray into the affordable home segment, leveraging the expertise from Lagenda Properties, which specialises in this domain. Unlike an outright land disposal, the joint venture (JV) allows the group to learn, explore, and study the viability of the segment," HLIB stated.

Describing the affordable homes segment as highly scalable and replicable, HLIB said that if this pilot project proves successful, it could pave the way for future developments by SimeProp in this space in other states.

"Given the current government’s decentralisation efforts in bringing economic development to different states, SimeProp's move is timely, as we expect more development opportunities to become available in these states," the research house added.

HLIB acknowledged an estimated net profit margin of approximately 20% for the affordable home project, projecting SimeProp's share of profit to be around RM15 million or an earnings per share of 22 sen per annum from the financial year ending Dec 31, 2025 (FY2025), assuming a five-year development period.

This represents around 3.9% of HLIB's FY2025 earnings forecast. Thus, the research house made no changes to its forecast pending the upcoming results release.

HLIB also maintained its "buy" call on SimeProp, with an unchanged target price of RM1.05, based on a 50% discount to its estimated revalued net asset value of RM2.10.

"The group is currently in a sweet spot with exposure to the thriving industrial segment and the improving residential landed market in the Greater Klang Valley area," HLIB said.

On Wednesday, SimeProp announced that its wholly-owned subsidiary Seed Homes Sdn Bhd had signed a shareholders' agreement with Lagenda Properties to set up Seed Homes Lagenda, a 50:50 JV to develop affordable housing.

Seed Homes Lagenda is set to embark on its first affordable township project in Gurun, Kedah, via the acquisition of a 249-acre land parcel from SimeProp. The project aims to capitalise on its strategic location and the spillover effects of potential industrial growth in Gurun, anticipated to yield over 3,000 affordable homes.

At the time of writing on Friday, shares in SimeProp traded one sen or 1.33% higher at 76 sen, valuing the group at RM5.17 billion.

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