May 6, 2010

SIME - CIMB Research downgrades Sime to Neutral

Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research has downgraded Sime Darby from Trading Buy to NEUTRAL on news that more than RM1 billion in cost overruns for Bakun has come as a negative surprise. The research house said on Thursday, May 6 the cost overruns could lop 8% off its FY6/10 earnings and dent investors' confidence and sentiment towards Sime. "Management has not denied the news of a potential cost overrun at Bakun. Sime's 1.3% share price loss yesterday (Wednesday) wiped RM781 million from its market cap which is more than the likely losses," it said. CIMB Research said more importantly, this issue raises questions about transparency, execution and earnings momentum and leads it to believe there are insufficient catalysts for the stock to outperform in the short term. "To account for the risk of write-downs and dented confidence in Sime Darby, we now apply a 10% discount to our SOP value, which reduces our target price from RM10.82 to RM9.70. Although the stock's P/E valuation may be more attractive than its peers, it is offset by earnings downside risks from potential losses from Bakun project. "We recommend investors to switch to Wilmar in Singapore or Genting PLANTATION [] in Malaysia for exposure to the plantation sector," it said.

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