Results

1HFY06/14 core net profit of RM1.27bn accounted for 38.1-40.9% of consensus and our full-year estimates. We consider the results largely in line with our expectation, as we expect better CPO prices and property development earnings to boost earnings in 2H.

Deviation

None

Highlights

QoQ. 2QFY06/14 core net profit recovered significantly to RM818.3m (from RM447m in the previous quarter) and this was mainly due to:

1. Higher realized CPO price and seasonally higher FFB output as well as increased contribution from biodiesel operations and other refineries, which have collectively resulted in operating profit at the plantation division doubling to RM513.5m (from RM254.7m in 1Q); and

2. Higher contributions from Ford and Land Rover sales in Malaysia, narrowed losses at the Australasian operations, and improved performance in the China/HK operations, which have collectively resulted in a 45.1% jump in the motor division’s operating profit.

YTD. 1HFY06/14 core net profit declined by 24.5% to RM1.27bn mainly on the back of:

1. A 2% decline in realized CPO price, lower FFB output and lower CPO sales volume, which have resulted in a 35.3% decline in the plantation division’s operating profit;

2. Weak coal prices, which has in turn resulted in lower equipment deliveries and product support sales to the mining sector in Australasia; and

3. Weak demand sentiment in Singapore, coupled with the economic slowdown in Thailand, which has resulted in the motor division’s operating profit declining by 19.6% to RM257.4m.

Risks

• Sharp fall in FFB output and/or palm product prices at the plantation division;
• Prolonged weak demand for mining equipment; and
• Delay in property launches.

Forecasts

We trimmed our FY06/14 core net profit forecast marginally (<1%) to RM3.13bn, largely to reflect lower FFB yield assumption.

Rating

HOLD


Positives – Strong balance sheet.

Negative – (1) Cooling economic activities in China and Australia may have an adverse impact on Sime Darby’s earnings; and (2) Overseas expansion risk.

Valuation

SOP-derived TP trimmed by 0.5% to RM10.02 as we update its latest net debt position

Source: Hong Leong Investment Bank Research- 3 Mar 2014