Results

Met expectations. FY06/14 core net profit of RM3.1bn (- 4.8%) came in within expectations, accounted for 100.3% of our and 101.9% of consensus forecasts.

Exceeded FY04 headline KPI targets. Reported FY06/14 PATAMI and ROASF of RM3.35bn and 12% exceeded KPI targets (RM2.8bn and 10%) by 19.7% and 2%-pts respectively.

Dividends

Recommended a final DPS of 30 sen, bringing total dividend for FY14 to 36 sen, translating to a net yield of 3.8%.

Highlights

YTD… FY06/14 core net profit declined by 4.8% to RM3.1bn mainly on the back of: (1) lower FFB output and CPO sales (partly offset by higher CPO selling prices and improved performance at the midstream and downstream operations), which resulted in plantation division’s operating profit declining by 3.7% to RM1.9bn; (2) prolonged weak coal prices, which resulted in lower equipment deliveries and product support sales to the mining sector in Australia; and (3) additional cost provisions for the previous oil and gas projects.

QoQ… 4QFY06/14 core net profit rose 10.8% to RM1.03bn mainly on: (1) higher CPO sales volume and FFB production, as well as a sharp jump in profit contribution from midstream and downstream operations, which boosted operating profit for the plantation division by 40.9% to RM664.7m; (2) Improved contributions from the motor division; and (3) profit recognition from the commencement of construction works at the Pagoh Education hub and higher profit recognition from property development in Bandar Bukit Raja and Denai Alam, which boosted operating profit at the property division significantly.

Briefing highlights – (1) CPO prices expected to range bound in the near term; (2) Prospects of mining sector in Australia to remain challenging; and (3) committed to further enhance the motor division’s leadership position in the automotive industry.

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 tweaked to RM9.75 (see Figure 6) as we updated its latest net debt position.

Source: Hong Leong Investment Bank Research - 2 Sep 2014