Sime Darby (Hold; TP: RM9.82) - Beats expectations

Stock Name: SIME
Company Name: SIME DARBY BHD

Research House: HLG

Price Call: HOLD

Target Price: 9.82

Sime Darby (Hold; TP: RM9.82)

Beats expectations

• 1HFY12 core net profit of RM2.16bn (+39.4%) beatexpectations, accounted for 59.5% of our full-year forecast and 55% ofconsensus full-year estimates.
• Key variances are: (1) Higher-than-expected earnings contribution forthe industrial segment; and (2) Lower-than-expected effective tax rate.
• FY12-14 core net profit forecasts raised by 8.9-12.9%, largely toreflect: (1) Slightly higher FFB yield assumption for its Malaysian estates;(2) Higher sales at its industrial segment (particularly, in Australia toaccount for the larger product range following its recent acquisition ofBucyrus); and (3) Lower effective tax rate assumption.
• SOP-derived TP for Sime is raised by 4% to RM9.82, to reflect the upwardrevision in our earnings forecasts. Despite our Hold recommendation on thestock remains unchanged, we believe share price performance will likely sustainin the near-term, given: (1) The pending listing of FGV potentially at highvaluations and (2) The recent geopolitical tension in Iran (which has resultedin higher crude oil prices and this may eventually result in higher palm oilprices).

Source: HLIB Research 1 March 2012