Sime Darby Bhd (Nov 29, RM8.81)
Maintain trading buy at RM8.88, unchanged fair value of RM10.60: Sime Darby Bhd’s results for 1QFY12 ended Sept 30 were broadly in line with expectations, forming 27% of our full-year forecast and 28% of consensus numbers.
We expect weaker earnings in subsequent quarters due to lower crude palm oil (CPO) prices. The stock remains a “trading buy” for its attractive valuations and potential earnings-accretive mergers and acquisitions.
Sime Darby has gotten off to a good start for the year as all divisions other than energy and utilities turned in stronger earnings on a year-on-year basis in 1QFY12. As a result, the group posted a 64% jump in net profit.
But core net earnings fell 12% quarter-on-quarter due to lower selling prices for palm products, weaker property sales, a slowdown in industrial sales in China/Hong Kong, an unrealised loss of RM36 million on the fair valuation of foreign exchange contracts by its motor division and downtime at one of its power plants in Thailand.
We expect earnings in future quarters to be lower due to weaker CPO selling prices. As expected, no dividend was declared for the quarter. The group has set headline key performance indicator targets of RM3.3 billion net profit and return on equity of 13.3% for FY12. Net profit is 16% below our forecast, which we suspect could be due to lower CPO price assumptions.
Sime remains positive on its fundamentals but is cautious on the outlook for the rest of FY12 given the uncertain global prospects. — CIMB Equities Research, Nov 29
This article appeared in The Edge Financial Daily, November 30, 2011.
Maintain trading buy at RM8.88, unchanged fair value of RM10.60: Sime Darby Bhd’s results for 1QFY12 ended Sept 30 were broadly in line with expectations, forming 27% of our full-year forecast and 28% of consensus numbers.
We expect weaker earnings in subsequent quarters due to lower crude palm oil (CPO) prices. The stock remains a “trading buy” for its attractive valuations and potential earnings-accretive mergers and acquisitions.
Sime Darby has gotten off to a good start for the year as all divisions other than energy and utilities turned in stronger earnings on a year-on-year basis in 1QFY12. As a result, the group posted a 64% jump in net profit.
But core net earnings fell 12% quarter-on-quarter due to lower selling prices for palm products, weaker property sales, a slowdown in industrial sales in China/Hong Kong, an unrealised loss of RM36 million on the fair valuation of foreign exchange contracts by its motor division and downtime at one of its power plants in Thailand.
We expect earnings in future quarters to be lower due to weaker CPO selling prices. As expected, no dividend was declared for the quarter. The group has set headline key performance indicator targets of RM3.3 billion net profit and return on equity of 13.3% for FY12. Net profit is 16% below our forecast, which we suspect could be due to lower CPO price assumptions.
Sime remains positive on its fundamentals but is cautious on the outlook for the rest of FY12 given the uncertain global prospects. — CIMB Equities Research, Nov 29
This article appeared in The Edge Financial Daily, November 30, 2011.
