Results

• Above expectations… 4QFY17 core net profit of RM939m (qoq: +45.6%; yoy: +3%) took FY17 core net profit to RM2.48bn (+51%). The results beat expectations, exceeding consensus and our forecasts by 10-10.4%.
• FY17 net profit and ROE of RM2.44bn and 7% beat KPI targets, by 11% and 0.6%pts respectively.

Deviation

• Better-than-expected performance from plantation and motor divisions.

Dividends

• Proposed final DPS of 17 sen, bringing total DPS for FY17 to 23 sen, which is within our expectation.

Highlights

• QoQ… 4QFY17 core net profit rose 45.6% to RM939m, boosted mainly by: (1) Higher earnings at motor division (which in turn was due largely to higher contribution from BMW Malaysia); (2) RM57m earnings contribution from Battersea project; and (3) Lower finance costs.
• YoY… 4QFY17 core net profit increased by 3% to RM939m as lower industrial earnings were more than offset by higher earnings contribution from plantation and motor divisions, contributions from Battersea project, lower finance costs, and lower losses at property division.
• YTD… FY17 core net profit surged 51% to RM2.48bn, boosted mainly by improved earnings contributions from plantation (due to higher FFB production and palm product prices) and motor divisions, RM140m earnings contribution from Battersea project, and lower finance costs (arising from repayment of borrowings from proceeds RM2.2bn perpetual sukuk and RM2.3bn share placement). All these more than offset weaker property performance (resulted from weak sentiment and lower contribution from Pagoh Education Hub) and earnings contribution from industrial division.
• Management provided corporate exercise update (pg 2).

Risks

• Sharp fall in FFB output and/or palm product prices;
• Prolonged weak demand for mining equipment; and
• Delay in property launches.

Forecasts

• Maintained, as we believe we have already reflected our optimism on Sime Darby’s earnings prospects in our forecasts.

Rating

BUY ↔

• We maintain our BUY recommendation on Sime, underpinned by its plan to spin-off the plantation and property businesses, which would further crystalize Sime’s deep intrinsic value.

Valuation

• Maintain BUY recommendation with a slightly lower TP of RM9.96 (from RM10.06 previously), as we update our valuation parameters.

Source: Hong Leong Investment Bank Research - 28 Aug 2017