- We maintain BUY on Sime Darby, with an unchanged fair value of RM10.58/share – based on a 15% discount to our SOP value of RM12.45/share.

- Sime Darby’s 1QFY15F was below expectations, with a core net profit from continuing operations at RM437.23mil (-12.5% YoY, -60% QoQ) – accounting for 13.7% of consensus estimate. No dividend was declared.

- For its KPIs, it is targeting a net profit of RM2.5bil (-17% YoY) and a return on average shareholders’ equity of 8.5%. We have revised downwards our FY15F net profit to RM2.6bil, which is more in line with its internal target.

- The KPIs are based on an average CPO price of RM2,350/tonne (vs. our previous RM2,590/tonne). Sime Darby has also factored in the slowdown in the Australian mining sector arising from the pressure on commodity prices and a moderate growth for China.

- Meanwhile, it foresees a one-month delay of its proposed takeover offer for New Britain Palm Oil Ltd (NBPOL) as the European Commission needs more time to digest the market dynamics and impact of the acquisition.

- However, management does not foresee any major issues that would hamper the commission’s approval of the proposed takeover offer. It now expects to complete the exercise by the third week of January.

- For 1QFY15, all segments performed better YoY, except for industrials, which est. core PBIT fell 43% to RM185mil (-10% QoQ). However, all segments saw deteriorations QoQ due to margin squeeze (see Exhibit 2).

- The industrial division’s order book remained resilient at RM2.4bil vs. RM2.9bil as at end-June 2014. Management maintains that it does not foresee any significant recovery in the industrial sector over the next two years.

- For its plantation division, the average CPO price was at RM2,187/tonne (-6% from RM2,331/tonne in 1QFY14). FFB output rose 2% as Indonesia production jumped by 11% while Malaysia’s fell 2%.

- YoY, the motor’s division sold 7% more vehicles to 22,696 units compared with 21,219 units a year earlier, mainly due to improved BMW and Ford sales. The property division benefited from higher sales at Elmina East, Bandar Bukit Raja, Denai Alam and Bukit Jelutong.

- The catalysts are the listing of its auto division and CPO prices trending upwards. 

Source: AmeSecurities