News According to the Wall Street Journal, SIME
is in talks with Australia’s Ramsay Health Care Ltd. (RAMSAY) to form a joint
venture (JV) that combines several hospitals in Southeast Asia.
The news elaborated that the talks involved SIME injecting
three hospitals in Malaysia into a vehicle that will also include three of
RAMSAY’s Indonesian hospitals.
It also quoted a person familiar with the matter as saying
that the JV could eventually be listed on the Malaysian stock market.
Comments If the
news materialises, we would view the JV positively as the investment in the
healthcare industry should strengthen SIME’s earnings under its non-plantation
segment in the long term. However, the short-term earnings impact should be
minimal as its healthcare division registered only an EBIT of RM26m or 0.4% of
the group’s EBIT in FY12.
That said, we believe that there is strong growth potential
for the healthcare industry in Indonesia given that its Health Expenditure Per
Capita* (HEPC) has grown at a strong 5-year CAGR of 23% to USD77 in 2010 (based
on The World Bank data). Even after growing at this level, there is still room
for more growth due to the HEPC low base of USD77 as compared to Malaysia’s
USD368 and Singapore’s USD1,733 in 2010.
Outlook Our main concern is still SIME’s plantation
division earnings, which contributed RM3.2b or 54% of the group’s EBIT in FY12.
Recall that SIME’s FY13 KPI of RM3.2b in net profit** is
based on an average CPO price assumption of RM2700/mt. As CPO prices in Jan-13
and Feb-13 have been weak at an average of RM2310/mt, we believe that SIME
should miss its FY13 net profit KPI above. Note that we are only expecting a
FY13E net profit of RM3.05b, in line with our assumption of an average CPO
price of RM2500/mt for CY13E.
Forecast Maintaining our FY13E-FY14E core net
profits of RM3.05b-RM3.55b.
Rating Maintain UNDERPERFORM
A possible FY13E consensus earnings downgrade should
pressure the share price. Note that the consensus is still estimating an
average CPO price of RM2880/mt for CY13.
Valuation Maintaining our Target Price of RM8.82 based
on a Sum-Of-Parts valuation (refer Page 3).
Risks Better than expected CPO prices.
Source: Kenanga
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