- We maintain HOLD on Sime Darby, with a lower fair value of RM8.00/share (vs. RM9.00/share previously), based on a 20% discount to our downward revised SOP value of RM10.00/share amid a challenging economic environment.

- Sime Darby posted a core net profit of RM851mil (+613% QoQ, -27% YoY) for 4QFY15, bringing the FY15 core earnings to RM1,805mil (-43% YoY).

- The core number came in at 12% above our expectations but was 9% below consensus estimate. It proposed a final single-tier dividend of 19 sen/share (yield of 2.55%), bringing the total for the year to 25 sen/share (vs. our forecast of 36 sen/share) – for a payout of 66%.

- Its FY15 net profit of RM2,313mil included gains of RM257mil on cross currency swap contracts and gains of RM213mil from the disposals of equity. At yesterday’s briefing, management confirmed that it is mulling over options in strengthening the balance sheet.

- The fundraising options could involve shareholders (possibly alluding to a rights issue) or it could be through the “monetisation of assets” or the unlocking of value of idle or unused assets. A decision could be made within six to nine months.

- Management said while the company was “not in dire need” to raise funds, it could be used to pare down the more expensive debts and to build its war chest towards exploring acquisition opportunities.

- It could possibly reduce gearing to a level in the 30s vs. the current level of 58%. A reduction of its gearing would help it to maintain a stable international credit rating, thereby curbing credit cost from rising. A back-of-the envelope crunching suggests proceeds of RM6bil-RM7bil would bring its gross gearing to the 30s.

- On a transactional basis, the ringgit weakness could negatively impact purchases in the auto division, but translational, it would be positive on foreign assets valuation. On a net basis, management believes that the currency weakness would not have a negative impact.

- Management foresees continuing headwinds in the industrial and auto units. Property could potentially be a medium-term catalyst, with Battersea phase one expected to start contributing to earnings from FY16.

- We advocate waiting out the current weak environment. A cash call now could be positive, but only if a strong recovery can be seen for the commodities sector within the next year. Maintain HOLD.

Source: AmeSecurities Research - 27 Aug 2015