Period    1Q13

Actual vs. Expectations SIME's 1Q13 core net profit* of RM965m came in within both the consensus and our expectations. It made up 23% of the consensus' FY12 forecast of RM4.14b and 24% of our forecast of RM3.94b.

Dividends   No dividend was announced as expected.

Key Results Highlights  YoY, SIME's 1Q12 core net profit declined 3% to RM965m. Despite the good performance from the industrial division (EBIT +17% to RM379m) and motor division (EBIT +3% to RM159m), significantly lower earnings from the plantation division (EBIT -28% to RM675m) dragged down the overall earnings. The average CPO price was at RM2707 (-8%) despite a higher FFB production of 2.94m mt (+6%). Operating cost may have increased more than 10% in view of the higher fertiliser and wage costs.

 QoQ,  SIME's 1Q12 core net profit declined 12% to RM965m. Despite the good performance of the industrial division (EBIT +5% to RM379m), significantly lower earnings from plantation division (EBIT -16% to RM675m) dragged down the overall earnings. The average CPO price was at RM2707 (-11%) despite a higher FFB production of 28% to 2.94m mt. In addition, the midstream and downstream segment suffered a loss of RM25m (4Q12: RM3m gain).

Outlook   SIME has announced its FY13 KPI of RM3.2b in net profit** (FY12 KPI: RM3.3b) and a ROE of 12.0% (FY12 KPI: 13.3%). We believe the lower target may be attributed to the expectation of lower CPO prices for FY13. This is in line with our FY13E CPO price estimate of RM2850 (-4% YoY).

Change to Forecasts    We have reduced our FY13E-FY14E earnings by 7% each to RM3.68b-RM3.83b. This is in line with our lower average CPO price assumptions for CY13-CY14 of RM2850/mt for each of the years (previously RM3000/mt).

Rating  Maintain MARKET PERFORM

 Unexciting FY13E earnings growth should keep its share price upside limited.

Valuation    We have lowered our TP to RM9.00 (from RM9.80 previously) based on Sum-Of-Parts with the plantation division valued at 17.5x Fwd PER.

Risks   A sustained drop in CPO prices.

 Worse than expected margins from the other non-plantation divisions.  

Source: Kenanga