Sime Darby - FY12E result preview

SIME will release its FY12 earnings results on 29 August and we expect its core earnings to hit a historical high of RM4.02b, in line with the consensus estimate of RM4.00b. On the overall, the FY12E core earnings growth will be decent at 4% YoY mainly driven by ~30% EBIT growth in its industrial segment to RM1.36b. The plantation division earnings should be flattish in FY12E as the higher CPO prices achieved is offset by the overall FFB decline of 3% to 9.76m mt. Meanwhile, the motor and property divisions' earnings should register better EBIT YoY of >5%. We are maintaining FY12E-FY13E earnings of RM4.02b-RM4.20b, representing decent growth of 4% for both years. We are also maintaining a MARKET PERFORM on SIME with a TP of RM10.30. Although the prospect for its non-plantation divisions remained bright, our flattish CPO prices outlook at RM3150-RM3100 for CY12-CY13 will keep the overall group’s FY13E earnings growth limited at ~4%.

Expect FY12E core earnings to meet the consensus estimate of RM4.00b. SIME will release its FY12E result on 29 August and we expect its core earnings to hit a historical high of RM4.02b, in line with the consensus estimate of RM4.00b. We also expect the YoY core earnings growth to be decent at ~4%, mainly driven by the ~30% EBIT growth in its industrial segment to RM1.36b.

Industrial division should be the star performer. We expect FY12E EBIT to grow 30% YoY to RM1.36b on the back of New earnings contribution from Bucyrus from Dec 2011. Strong demand in mining, logging and construction sectors in Australasia, Malaysia and Singapore onwards has also boosted its earnings. Prospect for FY13E remained favourable as this will be the first year where SIME will realise its full potential earnings from the Bucyrus acquisition.

Flattish earnings from plantation division. Plantation division earnings should be flattish in FY12E as the higher CPO prices achieved will be offset by the overall FFB decline of 3% to 9.76m mt. The lower FFB volume was caused by the worse-than-expected tree stress in Kalimantan due to the dry season that occurred in mid-2009 and mid-2011. However, sign of a FFB production recovery is already underway with July-12 FFB volume of 954k mt being 14% better MoM and 5% higher YoY. Note that July-12 FFB volume is the first month of YoY growth for SIME after 5 months of YoY decline.

Final net dividend of 23.8 sen? We believe the likely final dividend to be announced will be 8% higher YoY against last year’s final dividend of 22.0 sen in line with the improved earnings. Combined with the interim net dividend of 10.0 sen announced earlier in end-Feb, we expect a FY12E total net dividend of 33.8 sen, implying a decent net dividend yield of 4.2%. We have assumed a 50% payout ratio in line with SIME’s historical practice to pay out a minimum 50% of its earnings.

Maintain FY12E-FY13E core earnings of RM4.02b-RM4.20b. We think that the prospect for its non-plantation divisions remain bright for FY13E and also in the long run. However, our flattish CPO prices outlook at RM3150-RM3100 for CY12-CY13 will keep the overall group’s FY13E core earnings growth limited at 4%. Note that the plantation division made up ~60% of SIME’s EBIT in FY11 and we expect the division contribution to be significant at 58% in FY13E.

Source: Kenanga