May 14, 2010

SIME - CIMB Research downgrades Sime Darby to trading sell

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

KUALA LUMPUR: CIMB Equities Research has downgraded SIME DARBY BHD [] to a TRADING SELL with lower target price of RM8.36. It said on Friday, May 14 Sime Darby estimates a RM964 million loss for its energy and utilities division, which is more than four times its worst-case estimate of RM227 million loss. "The only small consolation is the leave of absence taken by its CEO before his contract expires in November as this suggests some accountability in the group," it said. CIMB Research slashed its FY10 earnings estimate by 37% to account for the provisions. For FY11-12, it downgraded its earnings forecasts by 2% for lower contributions from the oil & gas unit. "We are cutting our target price by 13% to RM8.36 after (1) taking into account the additional provisioning, (2) cutting our valuation for the energy & utilities assets from 1x P/BV to 0.5x, and (3) applying a higher discount of 20% to its SOP value instead of 10%. "We expect the share price reaction to the news to be negative and downgrade the stock from Neutral to TRADING SELL. For exposure to the PLANTATION [] sector in Malaysia, we recommend a switch to Genting Plantation," it said.

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