Results

9MFY06/14 core net profit of RM2.1bn (-10.9% yoy) accounted for 66.9-67.4% of consensus and our full-year forecasts. We consider the results within expectations as we expect 4Q to come in stronger, underpinned by: (1) profit recognition at the property division, which tends to be lumpier in 4Q; and (2) higher plantation earnings (on higher FFB output).

Deviations

None

Highlights

YTD… 9MFY06/14 core net profit declined by 10.9% yoy to RM2.1bn mainly on the back of: (1) lower FFB output (- 12%) and CPO sales volume (-10%); (2) lower equipment deliveries and product support sales to the mining sector in Australia (as coal prices continue to weaken); and (3) lower contribution from the motor division (as most markets reported lower earnings).

Plantation division. Despite having anticipated a stronger output in 4Q, management guided for a lower FFB output in FY14 (to -5% vs. -2% guided in previous quarter), given the YTD output decline of 12% (arising from the prolonged dry weather that affected FFB yield for its oil palm operations in both Malaysia and Indonesia).

Industrial division. Orderbook in end-3Q increased by RM0.5bn to RM2.6bn (mainly contributed by Malaysia, Singapore and China). Management highlighted that demand outlook from the Australian market (which accounts for more than half of the division’s earnings) will likely remain challenging in the near term, on the back of weak near-term coal price outlook.

Property division. Demand for landed properties remains strong, evidenced by an average take-up of 76% for its recent property launches in Elmina East and Bandar Bukit Raja and a total unbilled sales of RM1.68bn in end-Mar (+45% yoy).

E&O. Management hinted its intention to retain the remaining 22% stake in the company, and stressed that it is still able to leverage on E&O’s brand identity, particularly, the property sector in Penang and Johor.

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

Maintained.

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 maintained at RM10.02 (see Figure 6).

Source: Hong Leong Investment Bank Research - 30 May 2014