Period     3Q13/9M13

Actual vs. Expectations     Sime Darby’s (“SIME”) 9M13 core net profit* of RM2.33b missed the consensus estimate but was within ours. It made up 68% of the consensus forecast (RM3.43b) and 76% of our forecast (RM3.05b).

We believe the consensus may have overestimated the earnings growth in  the industrial division. Note that the division’s 3Q13 EBIT declined 26% YoY to RM260m due to slower equipment and products sales to the mining sector in the Australasia region. In FY12, industrial division was the second biggest earnings contributor to SIME with an EBIT of RM1.33b or 23% of the group’s EBIT.

Dividends    As expected, no dividend was announced.

Key Results Highlights    YoY, the 9M13 core net profit declined 20% to RM2.33b as CPO prices tumbled 19% to RM2338/mt. However, this was mitigated by a FFB growth of 9% to 8.11m mt and better earnings from the motor division.

QoQ, the 3Q13 core net profit slipped 7% to RM657m due to a seasonally lower FFB production (-24% to 2.23m mt). This was, however, mitigated by better earnings from the property and motor divisions.

Outlook    The earnings miss and current low CPO prices should limit the share price upside.

Change to Forecasts    Maintaining our FY13E-FY14E earnings of RM3.05b-RM3.55b.

Rating   Maintain MARKET PERFORM

Despite the earnings miss, the strong liquidity in the local market is likely to limit share price downside. We would advocate a “Buy On Weakness” strategy when the share price falls below RM9.20.

Valuation     Maintaining our TP of RM9.80 based on Sum-OfParts with the plantation division valued at 18.7x CY14E earnings.

Risks    Worse than expected CPO prices.

Lower than expected industrial sales.

Lower than expected earnings from its property division. 

Source: Kenanga