Thursday 1 March 2012

Sime Darby - Solid numbers all around BUY


We maintain our BUY rating on Sime Darby, but with our fair value of RM10.60/share placed under review with an upside bias pending a management meeting.

Sime reported a 2QFY12 net profit of RM1.1bil, which brings its 1HFY12 earnings to RM2.2bil or an impressive +42% growth YoY. This came in within our, and street, expectations, covering 53% and 55% of full-year estimates, respectively. It declared an interim dividend of 10sen/share (versus 8 sen/share for 1HFY11).

Key highlights from the 1HFY12 earnings announcement:-

Plantation division saw its EBIT growing by a massive 38% YoY, driven by a stronger average CPO price of RM2,872/tonne versus RM2,692/tonne in 2QFY11. Solid FFB production growth of 4.6% was driven by healthy growth (+9.5% YoY) in Malaysia although production in Indonesia slid by 4%. OER was slightly higher at 21.9% against 21.4% due to new mills in operation and some upgrades.

However, its downstream division reported losses of RM37mil which were mostly due to the weak performance at its Holland operations – affected by a competitive market, and high operating costs due to inefficient mills.

Industrial showed solid growth in EBIT (+38% YoY) to RM628mil, underpinned by strong mining & logging activities in the Australia region. We expect this division to continue to perform given the expected continued robust mining activities. That aside, a one-off acquisition cost relating to the purchase of Bucyrus was recognised during the quarter which amounts to RM62mil.

Motor division EBIT growth of 11% was capped by a weaker contribution from China/HK as result of forex losses of RM37mil. Discounting the losses, growth would have been a healthy 31% YoY. On the flipside, the new BMW 3-series and Hyundai Elantra & Veloster will be launched by 1HCY12 in Malaysia and these models would be one of the key drivers for the motor unit. We have assumed a 10% revenue growth for FY12F or a volume of circa 79,000 cars.  

The tighter credit on hire purchase would have a negligible impact on Sime’s motor division, given its portfolio mix are dominated by higher-end makes.

We continue to like Sime as the company is the most liquid proxy to the plantation sector, which accounts for 61% of its FY11’s EBIT. Valuations are also attractive, currently trading at CY12F PE of 15x which is below its 3-year average of 17x.  

Source: AmeSecurities

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