Journey to Wealth
Sime Darby - OUTPERFORM - 31 May 2012
Period 3Q12 and 9M12
Actual vs. Expectations
SIME 9M12 core earnings spot-on with consensus expectations and broadly within our expectation. The 9M12 core net profit of RM3.05b made up 75% of the consensus' forecast of RM4.09b and 68% of our forecast of RM4.50b.
FFB production growth turned out to be smaller than expected while the downstream segment loss was deeper than anticipated.
Dividends No dividend was announced as expected.
Key highlights
YoY, the 9M12 core earnings surged 34% due to better CPO prices at RM2,881 per mt (+2% YoY and a better OER achieved at 21.8%.
However, 9M12 FFB growth is below expectation at 1% YoY. Although Malaysia estates register healthy FFB growth of 5% YoY, Indonesia estates FFB production has declined 7% YoY. This is due to laggard effect of dry season in Jun-Sep 2011 and May-Sep 2012.
QoQ, the 3Q12 core earnings dropped by 19% due to a seasonally lower FFB production in 3Q12 of 2.06m mt (-22% QoQ).
Outlook Management is now looking at FY12E FFB growth of 1%-2% (from 6% previously). For FY13E, FFB growth should normalized back to 7%.
The downstream segment loss is expected to persist throughout FY12-13E and we have assumed losses of RM65m-RM32m.
Change to Forecasts
We have revised down our FY12-13E net profits by 5%-4% to RM4.26b-RM4.47b. We have assumed a lower FFB yield of 17.0mt/ha (from 20.0mt/ha) for Indonesian estates in FY12E, in addition to the downstream losses.
Rating Maintain OUTPERFORM
The valuation of 13.0x FY13E PER is attractive as compared to IOI (15.8x) and KLK (16.8x). We think the current discount above is unjustified given its status as the biggest market cap planter with superior liquidity.
Valuation We have lowered our target price by 7% to RM10.80 (previously RM11.60). Our valuation is based on Sum-Of-Parts with the Plantation division valued at 17.5x Fwd PER. We have rollover our valuation to FY13E numbers.
Risks A sustained decline in CPO prices.
Source: Kenanga
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