Sime Darby Berhad (SIME) recorded 9M17 Core Net Profit (CNP*) of RM1.58b, which we deem within expectations at 68% of both consensus and our forecast, as it is in line with the historical average (68%). No dividend was announced as expected. Maintain FY17-18E CNPs at RM2.33-2.29b. Reiterate MARKET PERFORM with no change to TP of RM9.50.

9M17 within estimates. SIME saw 9M17 CNP of RM1.58b, making up 68% of both consensus (RM2.31b) and our forecast (RM2.33b). We deem this within expectation as the eight-year historical 9M averages 68% of full-year performance . Note that 9M17 FFB production at 7.33m metric tons (MT) is in line with our full-year estimated 9.62m MT at 76%.

Plantation support. YoY, CNP rose 61% as Plantation contribution jumped 1.8x on the back of higher CPO prices (+35%) and recovering FFB production at -2% YoY, from -10% in 1H17. This more than offset weak Property performance (-51%). On a core PBIT** basis, Property segment weakened 16% to RM191m, mainly due to softer market conditions. Industrial segment declines softened to -5%, from -14% in 1H17, on stabilizing coal prices and better support demand. Meanwhile, the Motors segment saw growth (+28%) on new model launches, particularly in Malaysia and China. QoQ, CNP rose 6%, thanks to stronger Plantation contribution (+29%) on better CPO prices (+9%) which well offset seasonally softer FFB production (-10%). Industrial contribution also improved 49% on better construction demand in Malaysia and China, and stronger sentiment in Australia. Core Property operating loss narrowed to RM12m, from RM16m, on higher revenue recognition. Motors performance was slightly weaker (-7%) on lower SEA ex- Malaysia sales.

Preparing Plantation and Property for CY17 listing. We gather that the listing exercise of its Plantation and Property arms is on track for completion by end-CY17 (refer overleaf for timeline guidance). Concluding our recent study trip to Carey Island, we believe the Plantation outlook remains robust on decent prices and production recovery (refer overleaf for further details), while Property segment should see further earnings recognition from Battersea Phase 1 in 4Q17-1Q18. However, overall Property and Industrials outlook is lukewarm on lingering soft sentiment and ongoing business reviews while Motors is slightly positive on new model releases.

Maintain FY17-18E CNP at RM2.33-2.39b as we deem 9M17 results within expectations.

Reiterate MARKET PERFORM with an unchanged TP of RM9.50 based on Sum-of-Parts, as we roll forward our valuation base year to FY18E (from CY17E). Our Plantation segment valuation is unchanged at 26x, implying a 5% premium to average big-cap PER of 25.0x. As we believe the market has already fully priced in the proposed listing structure of the Plantation and Property divisions based on our SoP valuations, we maintain our MARKET PERFORM view on the stock.

Source: Kenanga Research - 01 Jun 2017