Results

• FY06/15 core net profit of RM2.02bn (-35.8%) missed our forecast by 9.3%. Against street, the results came in within expectations, accounted for 101.7% of consensus forecast.

Deviation

• Lower-than-expected realized CPO selling price.

Dividend

• Recommended final single-tier DPS of 19 sen, bringing total DPS for the year to 25 sen (exceeding 22% we projected).

Highlights

• QoQ… 4QFY06/15 improved by 77% to RM734m, mainly on the back of: (1) Contribution from NBPOL, higher realized CPO selling price, and higher FFB production in Malaysia, which have contributed to higher earnings at the plantation segment; (2) Improved performance at the industrial segment, which was in turn due to higher sales from product support businesses to the mining and construction sectors in Australia and Singapore, as well as normalization of equipment and engines deliveries in China/HK; and (3) Improved earnings at the motor division, driven by dividend income and improved performances from BMW and trucks operations in the Australasia region.

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

• FY06/16-17 core net profit forecasts cut by 6.6-9.7%, largely to account for lower EBIT margin assumptions at the industrial and energy & utilities segments. No change in our FY06/16-17 average CPO price assumptions for now, pending a thorough review (with downward bias).

Rating

HOLD

Negatives

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

Positives

• Commendable balance sheet.

Valuation

• Post earnings revision, SOP-derived TP lowered by 8.1% to RM7.03 (see Figure 5). Recommendation upgraded from Sell to HOLD, as we believe value has emerged following the recent sell down.

Source: Hong Leong Investment Bank Research - 27 Aug 2015