Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: OSK
Sime Darby Bhd
(May 30, RM9.15)
Maintain sell at RM9.13 with higher target price of RM8.47 (from RM7.90): We are maintaining our 'sell' call on Sime Darby with fair value raised to RM8.47. Its strategic refocusing and our raising of earnings forecast notwithstanding, we believe Sime is at best fairly valued. While we readily admit that the company's fundamentals are the best in a long while, the stock is already trading at mid-teens forward price-earnings ratio. The company's growth for the next'' two to three years will also be driven by non-plantation cyclical segments such as industrial and motor, which are essentially trading and distribution businesses.
Sime's 9MFY11 core net profit of RM2.35 billion, when annualised, was within both our forecast but 5.5% below consensus. However, with the earnings momentum shown by its industrial and motor segments, we believe Sime's 4Q showing will be better.
Sime's plantation segment produced 7.4 million tonnes of fresh fruit bunches (FFB) and appears to be on track to hit our forecast of 9.7 million tonnes for FY11. Its Indonesian operation reported a 37.4% surge in March production while the Malaysian plantations suffered a 2.1% decline. Sime still has some 60,000ha of landbank in Indonesia, of which 24,000ha is ready for planting. The group also made progress in Liberia, where it planted its first oil palm tree on May 19. The company is targeting 5,000ha of new planting this year.
The motor segment continued to do well, with segment earnings before interest and tax (Ebit) surging 28.6% quarter-on-quarter. Year-to-date, Ebit is now up 89.8% from last year. The strong performance was mainly due to strong sales of BMW, which make up 63% of its Ebit. Sales were boosted by new launches such as the new generation X3 and 5-series plus 320i M Sport and Executive Edition. The new generation 3-series should hit the market in 2012. This will help to keep its momentum going, particularly in the China market, which now makes up 45% of the motor segment's revenue.
Sime Engineering has entered into a MoU with Petroliam Nasional Bhd (Petronas) and Malaysia Marine & Heavy Engineering Holdings Bhd (MMHE) to dispose of its Teluk Ramunia yard for RM296 million and Pasir Gudang yard for RM399 million for strategic reasons. Even if the sale goes through, Sime is still obliged to complete its existing Petronas jobs. We view the disposals positively as it is a clear sign of strategic refocusing (on oil palm downstream and power).
We have raised our earnings forecast for FY11 from RM3.04 billion to RM3.23 billion to factor in a still-strong motor segment performance while our FY12 forecast is pushed up to RM3.56 billion from RM3.29 billion previously. ' OSK Research, May 30
This article appeared in The Edge Financial Daily, May 31, 2011.
Company Name: SIME DARBY BHD
Research House: OSK
Sime Darby Bhd
(May 30, RM9.15)
Maintain sell at RM9.13 with higher target price of RM8.47 (from RM7.90): We are maintaining our 'sell' call on Sime Darby with fair value raised to RM8.47. Its strategic refocusing and our raising of earnings forecast notwithstanding, we believe Sime is at best fairly valued. While we readily admit that the company's fundamentals are the best in a long while, the stock is already trading at mid-teens forward price-earnings ratio. The company's growth for the next'' two to three years will also be driven by non-plantation cyclical segments such as industrial and motor, which are essentially trading and distribution businesses.
Sime's 9MFY11 core net profit of RM2.35 billion, when annualised, was within both our forecast but 5.5% below consensus. However, with the earnings momentum shown by its industrial and motor segments, we believe Sime's 4Q showing will be better.
Sime's plantation segment produced 7.4 million tonnes of fresh fruit bunches (FFB) and appears to be on track to hit our forecast of 9.7 million tonnes for FY11. Its Indonesian operation reported a 37.4% surge in March production while the Malaysian plantations suffered a 2.1% decline. Sime still has some 60,000ha of landbank in Indonesia, of which 24,000ha is ready for planting. The group also made progress in Liberia, where it planted its first oil palm tree on May 19. The company is targeting 5,000ha of new planting this year.
The motor segment continued to do well, with segment earnings before interest and tax (Ebit) surging 28.6% quarter-on-quarter. Year-to-date, Ebit is now up 89.8% from last year. The strong performance was mainly due to strong sales of BMW, which make up 63% of its Ebit. Sales were boosted by new launches such as the new generation X3 and 5-series plus 320i M Sport and Executive Edition. The new generation 3-series should hit the market in 2012. This will help to keep its momentum going, particularly in the China market, which now makes up 45% of the motor segment's revenue.
Sime Engineering has entered into a MoU with Petroliam Nasional Bhd (Petronas) and Malaysia Marine & Heavy Engineering Holdings Bhd (MMHE) to dispose of its Teluk Ramunia yard for RM296 million and Pasir Gudang yard for RM399 million for strategic reasons. Even if the sale goes through, Sime is still obliged to complete its existing Petronas jobs. We view the disposals positively as it is a clear sign of strategic refocusing (on oil palm downstream and power).
We have raised our earnings forecast for FY11 from RM3.04 billion to RM3.23 billion to factor in a still-strong motor segment performance while our FY12 forecast is pushed up to RM3.56 billion from RM3.29 billion previously. ' OSK Research, May 30
This article appeared in The Edge Financial Daily, May 31, 2011.
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