Sime Darby’s (SIME) FY17 core net profit of RM2.69bn (+1.4% yoy) came in above expectations. The variance was mainly due to higherthan-expected contribution from the plantation and motor divisions. SIME’s proposed listing of its plantation and property businesses is on-track and expected to be completed by end-2017. We have tweaked our FY18-19 core EPS forecast by +0.2%/-7% to account for the FY17 results. Our SOTP derived 12-month target price on SIME is revised slightly higher to RM9.06, after taking into account our new forecast. Maintain HOLD rating on the stock.

Update on Proposed Listing of Plantation and Property Businesses

To recap, SIME announced its plan to create three iconic stand-alone businesses which are plantation, property and industrial, motors & logistics. The proposed listing of the plantation and property businesses is progressing on schedule and is expected to be completed by end-2017. The distribution of the prospectus is likely to be as soon as September. To note, the results of the plantation and property businesses have been classified as discontinuing operations. Upon completion of the listing, both Sime Darby Plantation Berhad and Sime Darby Property Berhad would be deconsolidated from the Sime Darby Berhad Group.

FY17 Results Above Expectations

SIME’s FY17 revenue from continuing operations increased by 5.6% yoy to RM31.1bn. The net profit, inclusive of profit from discontinuing operations, was up marginally by 0.7% yoy to RM2.4bn. The increase in profit was mainly due to higher contribution from plantations (higher CPO ASP of RM2,848/MT vs RM2,242/MT in FY16 and higher FFB production by 1.7% yoy to 9.8m MT) and motors (higher contribution from Malaysia, China/HK and New Zealand). Meanwhile, lower profit contribution were seen from industrial (due to lower engine deliveries to O&G and marine sectors in Singapore, project delays in HK and intense competition in Australasia), property (lower gains from asset monetisation and compulsory land acquisition) and logistics (due to lower throughput at Jining ports as a result of tighter environmental control by Jining authority but partially mitigated by higher water consumption and higher average tariff in Weifang port). After excluding one-off items, FY17 core net profit increased by 1.4% yoy to RM2.69bn, this came in above expectations. The variance was mainly due to higher-than-expected contribution from plantation and motor divisions. SIME declared a final DPS of 17 sen, bringing total FY17 DPS to 23 sen (FY16: 27 sen).

Source: Affin Hwang Research - 28 Aug 2017