Results

FY06/13 core net profit of RM3.3bn (-21.9%) came in within expectations at 101% and 103.6% of consensus and our forecasts, respectively.

Dividend

Recommended final single-tier DPS of 27 sen, bringing total DPS for FY06/13 to 34 sen, slightly lower than FY06’12 DPS of 35 sen.

Proposed Dividend Reinvestment Plan (DRP), of which the DRP shares will be issued at 5% discount to the 5-day weighted average price prior to price fixing date (after adjusting for the final dividend. If approved, the DRP will apply to the final DPS of 27 sen.

Highlights

YTD. FY06/13 core net profit declined by 21.9% to RM3.3bn due to: (1) Weaker plantation earnings arising from a much lower realized average CPO price of RM2,317/tonne (vs. RM2,925/tonne in FY06/12) (2) Weaker industrial earnings (arising from lower equipment sales to the mining sector in Australasia and lower deliveries in Malaysia and Singapore to the marine and oil and gas sectors); (3) Lower earnings at the energy utilities segment arising from the absence of deferred revenue (the segment recorded RM99.4m deferred revenue from its power plant in Malaysia last year) and lower throughput volume in Weifang port.

YoY. 4QFY06/13 core net profit declined by 21.4% to RM929.5m mainly on the back of: (1) A 25% decline in realized average CPO price that dragged plantation earnings; (2) Weaker motor sales in Hong Kong, Singapore and Australia; and (3) RM33m allowance for doubtful debts at the energy and utilities segment.

Risks

• Earlier-than-expected recovery in edible oil demand and prices; and
• Weather uncertainties revisit, which would have a positive impact edible oil prices.

Forecasts

Maintained.

Rating

HOLD


Positives – Strong balance sheet.

Negatives – (1) Weak global economic outlook, coupled with the impending excess supply of CPO will affect both demand and prices of CPO; (2) Cooling economic activities in China and Australia may have an adverse impact on Sime Darby’s earnings; and (3) Overseas expansion risk.

Valuation

SOP-derived TP raised from RM8.58 to RM8.73 (see Figure 6) as we update Sime’s latest net debt position. Maintain our HOLD recommendation on the stock.

Source:Hong Leong Investment Bank Research - 2 Sep 2013