Results

• 3QFY17 core net profit of RM645m (qoq: +10.1%; yoy: +348.9%) took 9MFY17 core net profit to RM1.45bn (+98.2%), accounting for 64.6-67.1% of consensus and our full-year forecasts.

Deviation

• We consider the results within our expectation as we expect 4Q to come in stronger on the back of contribution from Battersea project.

Dividends

• -

Highlights

• QoQ… 3QFY17 core net profit rose 10.1% to RM645m, as higher palm product prices, better performance at industrial division more than mitigated seasonally lower FFB output, higher losses at property division, absence of lumpy earnings recognition from Battersea project and marginally lower earnings at motor division.

• YoY… 3QFY17 core net profit more than quadrupled to RM645m (from RM144m in 3QFY16), boosted largely by: (1) Improved plantation earnings (arising from higher FFB output and palm product prices); (2) Significantly improved performance at motor division (particularly Malaysia and China); and (3) Better performance at industrial division.

• YTD… 9MFY17 core net profit almost doubled to RM1.45bn (from RM731m a year ago), driven mainly by plantation and motor divisions, as well as RM86m earnings from Battersea project.

Risks

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

• Prolonged weak demand for mining equipment; and

• Delay in property launches.

Forecasts

• Maintained.

Rating

BUY ↔

• We are keeping to our BUY recommendation on Sime, underpinned by: (1) Its plan to spin-off the plantation and property businesses, 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 earnings.

Valuation

• Maintain BUY recommendation and SOP-derived TP of RM10.06 (see Figure 8).

Source: Hong Leong Investment Bank Research - 1 Jun 2017