RHBInvest Research Highlights 12th January 2012

Stock Name: SIME
Company Name: SIME DARBY BHD

Research House: RHB

Price Call: BUY

Target Price: 10.65

Stock Name: UMW
Company Name: UMW HOLDINGS BHD

Research House: RHB

Price Call: SELL

Target Price: 6.20

12th January 2012

 

Top Story

Sime Darby ' Trading at unjustified discount to peers                                                    Outperform Visit Note -          Key takeaways: 1) Conservative CPO production growth targets likely to be surpassed?; 2) Downstream division bleeding but once Indonesian refinery is operational, things should improve; 3) New planting in Liberia behind schedule; 4) Good news in the heavy equipment division in the form of Bucyrus acquisition; 5) Resilient sales in the motor division; and 6) Appealing to the right target market in the property sector. -          We have revised our forecasts by -2.9% to +1.3% for FY12-14. We are maintaining our Malaysian CPO price assumptions at RM3,150/t for FY06/12 and RM2,900/tonne for FY13. -          Post-earnings revision, we have lowered our SOP target price to RM10.40 (from RM10.65). We maintain our Outperform call on the stock. Although earnings growth for Sime may not be too exciting, we believe PE valuations for the stock of 13-13.5x are at an unjustified discount to peers at 15-17x. In addition, with a dividend policy to pay out at least 50% of net earnings, we believe Sime's net yields of 3-4% p.a. provide a relatively decent and stable return for investors. -          Related story: Sime Darby Results/Briefing Note  ' No Significant Impact From Global Economic Slowdown Yet (29 Nov 2011)

Corporate Highlights

UMW ' New Toyota Avanza Launched                                                                       Underperform News Update -          UMW Toyota launched the Indonesian-assembled Toyota Avanza yesterday replacing the long-in-the-tooth previous generation vehicle that dates back to 2004. UMW Toyota is targeting to sell 8,500 units of the new Avanza in 2012. -          UMW is forecasting sales of 93,000 Toyota and Lexus vehicles in 2012 that is broadly in line with expectations, helped by the planned launch of four new models. -          We have tweaked our FY11-13 net profit estimates lower by 2.8%, 0.1% and 0.5% respectively. No change to our Underperform call on valuation grounds. We lift our PER-based, SOP fair value estimate to RM6.20 (from RM5.80). The main downside worry for UMW is margin pressure given that the US $ and JPY have appreciated 4.3% and 9.4% respectively against the RM in the past six months. However, hopes for a higher dividend payout could keep investor interest up. -          Related story: UMW Holdings - New Iraq Power Contract (21 Dec 2011)

Macro

Trade ' Exports growth slowed to a four-month low in November, as commodity exports weakened Economic Highlights (published 11 Jan 2012) -          Export growth slowed to 8.0% yoy in Nov, the lowest in 4 months, after holding up at +15.8% in Oct and off a 15-month high of +16.6% in Sep. -          This was due to sliding exports of commodity products as well as weaker growth in the exports of non-electronic & electrical (E&E) manufactured goods but was mitigated by a smaller contraction in the exports of E&E products. -          As a result, the trade surplus narrowed to RM9.5bn in Nov, from a surplus of RM13.2bn in Oct. -          Going forward, we expect the current account to record a larger surplus of RM101.5bn or 12.0% of GNI in 2012, compared with a surplus of RM98.8bn or 12.2% of GNI estimated for 2011.