Results

• 1QFY18 core net profit of RM823m (qoq: -12.4%; yoy: +233.2%) accounted for 32.6-34.3% our and consensus full-year estimates. we consider the results within expectations, as we expect weaker earnings in subsequent quarters on the back of moderating FFB production growth and lower contribution from Battersea project.

Deviation

• Broadly in line.

Dividends

• None.

Highlights

• QoQ… 1QFY18 core net profit declined by 12.4% to RM823m as higher earnings at industrial division was more than offset by weaker earnings at plantation (in particularly the PNG operations), property, and motor divisions.
• YoY… 1QFY18 core net profit more than tripled to RM823m (from RM247m a year ago), as all divisions reported improved performance.
• Update on corporate exercise… Reference prices for all 3 listed entities will be determined after 24 Nov and management highlighted that bulk of the corporate exercise expenses have already been provided for in end- FY17.
• FFB production growth to moderate in subsequent quarters… To circa 6% in FY18 from 25% yoy recorded in 1QFY18, mainly on the back of seasonality.
• On Battersea Power Station… Sime recorded RM87m profit from the handover of 431 units of Circus West (phase 1) in 1QFY18 and we understand that it still has about 100 units to be handed over in 2QFY18.
• Exiting motor business in Vietnam… Due to challenging operating environment. While Sime has already made full impairment on the goodwill, we understand that it still has stocks value worth ~RM100m in Vietnam, which it is in the midst of finding new buyers.

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 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 unchanged TP of RM9.96 .

Source: Hong Leong Investment Bank Research - 17 Nov 2017