Sime Darby RM8.88: Hold

Results Review

Share price: RM8.88
Target price: RM8.36


Off to a good start

Within expectations. 1QFY12 net profit of RM1,074m (-20% QoQ
+170% YoY) met 30% and 28% of our and consensus FY12 estimates.
It is within our expectation given the relatively higher FFB output
typically recorded in the 1Q of Sime’s financial year. Maintain earnings
estimates and Hold call with a RM8.36 TP based on 16x FY13 PER.

All major segments lower QoQ. Sime’s plantation division remains
the key earnings contributor to the Group at 63% of EBIT in 1QFY12, at
RM938m (-26% QoQ, +90% YoY). For the plantation upstream
operation, FFB output was 3% higher QoQ (+8% YoY), only to be
offset by lower CPO ASP of RM2,946/t (-5% QoQ, +17% YoY). The
downstream operational losses widened QoQ to RM38m (+39% QoQ)
against a slight profit of RM4m in 1QFY11.

Industrial affected by China operations, motor skidded by forex.
The China Industrial contribution was affected by tightening credits and
government policies, while Australasia continues to benefit from mining
demand. Current orderbook stays healthy at RM3b. Overall, Industrial
EBIT was -11% QoQ to RM324m (+43% YoY). Earnings from Motor
meanwhile was -19% lower QoQ to RM154m (+3% YoY) mainly due to
an unrealised forex loss of RM36m vs. RM6m a quarter ago. Excluding
these, Motor EBIT would have been lower marginally by just 4%.

Slower property sales. Lower sales of residential and commercial
properties coupled with lower percentage of property development
works completed in 1QFY12 resulted in lower property EBIT at RM53m
(-77% QoQ, -2% YoY). Sime is planning new launches to boost sales.

New KPI unveiled. Sime is targeting a modest net profit of RM3.3b for
FY12 (-10% YoY) or approximately 7% below our forecast. The new
KPI target could be Sime’s realistic assessment of the challenging
outlook ahead. This new KPI is based on CPO ASP of RM2,800/t for
FY12, which is largely in line with our forecast of RM2,850/t. Its final
(FY11) single tier DPS of 22sen will go ex on 29 Nov 2011.

(Information from MBB Investment Bank)

Definition of Ratings

BUY: Total return is expected to be above 10% in the next 12 months,
HOLD: Total return is expected to be between -5% to 10% in the next 12 months,
SELL: Total return is expected to be below -5% in the next 12 months.

Name	Definition
Adex	Advertising Expenditure
BV	Book Value
CAGR	Compounded Annual Growth Rate
Capex	Capital Expenditure
CY	Calendar Year
DCF	Discounted Cashflow
DPS	Dividend Per Share
EBIT	Earnings Before Interest And Tax
EBITDA	EBIT, Depreciation And Amortisation
EPS	Earnings Per Share
EV	Enterprise Value
FCF	Free Cashflow
FV	Fair Value
FY	Financial Year
FYE	Financial Year End
MoM	Month-On-Month
NAV	Net Asset Value
NTA	Net Tangible Asset
P	Price
P.A.	Per Annum
PAT	Profit After Tax
PBT	Profit Before Tax
PE	Price Earnings
PEG	PE Ratio To Growth
PER	PE Ratio
QoQ	Quarter-On-Quarter
ROA	Return On Asset
ROSF	Return On Shareholders’ Funds
ROE	Return On Equity
WACC	Weighted Average Cost Of Capital
YoY	Year-On-Year
YTD	Year-To-Date