Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: AMMB
Sime Darby Bhd
(April 26, RM9.05)
Maintain buy at RM9 with target price of RM10.60: We reiterate our 'buy' call on Sime Darby with an unchanged fair value of RM10.60, pegged to a 10% discount to our sum-of-parts value of RM11.78. Our fair value implies a CY11F price-earnings ratio (PER) of 17 times ' at parity to its three-year average.
We continue to like Sime, which is the most liquid proxy to the plantation sector currently enjoying bullish palm oil prices.
As we had indicated in our earlier oil and gas (O&G) reports, Sime's wholly owned Sime Darby Engineering Sdn Bhd has secured a RM1.2 billion contract to fabricate KBB topsides for the Kebabangan Northern Hub Development Project from Kebabangan Petroleum Operating Company Sdn Bhd (KPOC).
Petronas Carigali has a 40% stake in KPOC, Shell 30% and ConocoPhillips 30%.
The announcement did not describe in detail the project specifications, but according to Upstream Online this project may involve Kebabangan's 18,000-tonne topsides while Kencana Petroleum may be the front-runner for the 7,000 to 8,000-tonne jacket.
This contract will boost Sime's O&G order book by 77% from RM1.5 billion as at Dec 31, 2010 to RM2.7 billion.
We believe this huge domestic contract could lead to a turnaround in Sime's O&G segment, which recorded a loss of RM24 million in 1HFY11.
As the contract will be undertaken over a period of 29 months from April 22, 2011, full-year contribution from this job will materialise in FY12F/13F.
Assuming a conservative pre-tax margin of 5% vis-''-vis 9% for Malaysia Marine Heavy Engineering (MHB) and 15% for Kencana Petroleum, we estimate that this new Kebabangan contract could marginally add RM20 million or 0.5% to Sime's FY12F/13F earnings. As such, we maintain our forecasts.
The Edge weekly reported that MHB was looking to acquire Sime's engineering yard, in line with the Economic Transformation Programme's emphasis on consolidating local fabricators into regional players.
A return to profitability for this division could mean that the selling price for the yard may be more palatable to Sime.
Hence, there could be upcoming M&A news flow for the group.
The stock currently trades at a CY11F PER of 15 times compared with its three-year average of 17 times. ' AmResearch, April 26
This article appeared in The Edge Financial Daily, April 27, 2011.
Company Name: SIME DARBY BHD
Research House: AMMB
Sime Darby Bhd
(April 26, RM9.05)
Maintain buy at RM9 with target price of RM10.60: We reiterate our 'buy' call on Sime Darby with an unchanged fair value of RM10.60, pegged to a 10% discount to our sum-of-parts value of RM11.78. Our fair value implies a CY11F price-earnings ratio (PER) of 17 times ' at parity to its three-year average.
We continue to like Sime, which is the most liquid proxy to the plantation sector currently enjoying bullish palm oil prices.
As we had indicated in our earlier oil and gas (O&G) reports, Sime's wholly owned Sime Darby Engineering Sdn Bhd has secured a RM1.2 billion contract to fabricate KBB topsides for the Kebabangan Northern Hub Development Project from Kebabangan Petroleum Operating Company Sdn Bhd (KPOC).
Petronas Carigali has a 40% stake in KPOC, Shell 30% and ConocoPhillips 30%.
The announcement did not describe in detail the project specifications, but according to Upstream Online this project may involve Kebabangan's 18,000-tonne topsides while Kencana Petroleum may be the front-runner for the 7,000 to 8,000-tonne jacket.
This contract will boost Sime's O&G order book by 77% from RM1.5 billion as at Dec 31, 2010 to RM2.7 billion.
We believe this huge domestic contract could lead to a turnaround in Sime's O&G segment, which recorded a loss of RM24 million in 1HFY11.
As the contract will be undertaken over a period of 29 months from April 22, 2011, full-year contribution from this job will materialise in FY12F/13F.
Assuming a conservative pre-tax margin of 5% vis-''-vis 9% for Malaysia Marine Heavy Engineering (MHB) and 15% for Kencana Petroleum, we estimate that this new Kebabangan contract could marginally add RM20 million or 0.5% to Sime's FY12F/13F earnings. As such, we maintain our forecasts.
The Edge weekly reported that MHB was looking to acquire Sime's engineering yard, in line with the Economic Transformation Programme's emphasis on consolidating local fabricators into regional players.
A return to profitability for this division could mean that the selling price for the yard may be more palatable to Sime.
Hence, there could be upcoming M&A news flow for the group.
The stock currently trades at a CY11F PER of 15 times compared with its three-year average of 17 times. ' AmResearch, April 26
This article appeared in The Edge Financial Daily, April 27, 2011.
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