Results

• 1QFY17 core net profit of RM278m (qoq: -69.5%; yoy: -37.6%) accounted for 11.9-12.3% of our and consensus full-year forecasts. While we anticipate better performance in the subsequent quarters (on the back of lumpy property earnings and contribution from Battersea project), the results came in below our expectation.

Deviation

• Lower-than-expected FFB output.

Dividends

• -

Highlights

• QoQ… 1QFY17 core net profit declined by 69.5% to RM278m, due to weaker contribution from all major business segments (except for the logistic segment, which recorded flattish earnings growth).

• YoY… Despite a flattish revenue growth, 1QFY17 core net profit declined by 37.6% to RM278m mainly on the back of weaker earnings at plantation, industrial, and property segments. These were partly offset by improved performance at the motor segment (which showed improvement across all regions).

• Briefing highlights: (1) Introduced FY17 KPI targets, with net profit and ROE of RM2.2bn and 6.4% respectively; (2) FY17 FFB output guided to be flattish, but plantation earnings anticipated to improve in 2QFY17; (3) Industrial division to remain challenging despite the worst is over; and (4) Has recently engaged consultants in studying various options to unlock values, and hopeful that it will complete the study within the next 12 months.

Risks

• Sharp fall in FFB output and/or palm product prices;

• Prolonged weak demand for mining equipment; and

• Delay in property launches.

Forecasts

• We lower our FY17-19 by 1.8-1.9%, largely to account for lower FFB yield and higher CPO production cost assumptions.

Rating

BUY ↔

• Despite the weak 1Q earnings, we are keeping to our BUY recommendation, underpinned by: (1) Potentially more asset unlocking exercise, which would further crystalize Sime’s deep intrinsic value; (2) Recent completion of private placement, which has strengthened Sime’s balance sheet; and (3) Our anticipation of better quarters ahead on the back of better plantation and property earnings.

Valuation

• Post net profit forecast revision, we lower our SOP-derived TP by 2% to RM8.82 (see Figure 7). Maintain BUY recommendation.

Source: Hong Leong Investment Bank Research - 28 Nov 2016