Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: OSK
KUALA LUMPUR: OSK Investment Research has maintained its sell cal on SIME DARBY BHD [] at RM8.65 with target price RM7.02 after the conglomerate announced on Thursday it would recognise RM964 million in losses due to cost overruns related to the Qatar Petroleum project, Maersk Oil Qatar project, vessel CONSTRUCTION [] for the Maersk project and the Bakun dam.
It said these would significantly and negatively impact its FY10 profitability.
OSK Research said it had a net profit forecast of RM2.71 billion before the above losses surfaced.
"Assuming the RM964 million loss is at net level, our FY10 forecast will be cut by 35.6% to RM1.74 billion. The announcement probably did not take the market by surprise since rumors of Sime's RM1 billion loss from cost overruns have been widely circulating," it said in a note Friday, May 14.
On Sime president and CEO Datuk Seri Ahmad Zubir being asked to take a leave of absence prior to the expiry of his contract in November, OSK Research said while it do not disagree that a CEO needs to be held responsible for a company's massive losses, it believed that in Sime's case it was all too easy to put the blame on the CEO.
"We believe the source of Sime's problems is it being too big and too diverse to be managed and controlled properly. The lack of internal controls in the conglomerate is nothing new.
"In an earlier incidence, trading losses at Sime's PLANTATION [] downstream segment resulted in its financial controller being replaced. If Sime continues to be hit by losses from one segment or another, the only solution would be to break up the group into more manageable strategic business units," it said.
OSK Research made no changes to its core earnings forecast for FY10 and FY11, as it treated the project losses as one-off items.
"We recognise that there could be more losses in FY11 but these should not be as substantial as what has been announced," it said.
Company Name: SIME DARBY BHD
Research House: OSK
KUALA LUMPUR: OSK Investment Research has maintained its sell cal on SIME DARBY BHD [] at RM8.65 with target price RM7.02 after the conglomerate announced on Thursday it would recognise RM964 million in losses due to cost overruns related to the Qatar Petroleum project, Maersk Oil Qatar project, vessel CONSTRUCTION [] for the Maersk project and the Bakun dam.
It said these would significantly and negatively impact its FY10 profitability.
OSK Research said it had a net profit forecast of RM2.71 billion before the above losses surfaced.
"Assuming the RM964 million loss is at net level, our FY10 forecast will be cut by 35.6% to RM1.74 billion. The announcement probably did not take the market by surprise since rumors of Sime's RM1 billion loss from cost overruns have been widely circulating," it said in a note Friday, May 14.
On Sime president and CEO Datuk Seri Ahmad Zubir being asked to take a leave of absence prior to the expiry of his contract in November, OSK Research said while it do not disagree that a CEO needs to be held responsible for a company's massive losses, it believed that in Sime's case it was all too easy to put the blame on the CEO.
"We believe the source of Sime's problems is it being too big and too diverse to be managed and controlled properly. The lack of internal controls in the conglomerate is nothing new.
"In an earlier incidence, trading losses at Sime's PLANTATION [] downstream segment resulted in its financial controller being replaced. If Sime continues to be hit by losses from one segment or another, the only solution would be to break up the group into more manageable strategic business units," it said.
OSK Research made no changes to its core earnings forecast for FY10 and FY11, as it treated the project losses as one-off items.
"We recognise that there could be more losses in FY11 but these should not be as substantial as what has been announced," it said.
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