The Official Kenanga Warrants Blog

SIME: Kenanga Research keep their TP at RM2.35 and maintain MARKET PERFORM (Source: Kenanga Research)

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Publish date: Thu, 30 May 2019, 09:55 AM
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As of 30 May 2019, If you wish to gain exposure on SIME, we have

- SIME-C31 Effective Gearing of 11.12x & 9 Ticks Sensitivity 

- SIME-C34 Effective Gearing of 5.06x & 3 Ticks Sensitivity 

For more information about these warrants, visit our website www.nagawarrants.com

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9M19 CNP of RM647m (+26%) came in above our expectation at 81%, but appear to be in line with consensus at 73%, of full-year estimates. The positive variance was due to higherthan- expected Industrials contribution, albeit, the Motors segment continued to be impacted by strong competition. As such, we increased our FY19-20E CNPs by 6-4%, but we keep our TP at RM2.35 as we revised our SoP, to reflect the weaker market condition for its China Motors division. Maintain MP.
 
9M19 above our expectation. 9M19 CNP of RM647m (+26%) came in above our expectation at 81%, but appear to be in line with the consensus at 73%, of full-year estimates. Our positive variance was due to higher-than-expected Industrials’ contribution, albeit, the Motors segment continued to be impacted by strong competition, as well as affected by US-China trade war sentiment. No dividend was declared for the quarter as the group typically pay dividends in 2Q and 4Q.
 
YoY, 9M19 core CNP surged 26% mainly from higher Industrials’ core PBT (+102%), with the higher total order-book of RM2.6b (+10%), supported by higher equipment deliveries and product support sales to the construction and mining sectors in Australia. These more than offset: (i) lower Motors Vehicles’ core PBT (-18%) from heavy discounting activities to sustain sales momentum (total global vehicles sales at 60,796 units (+8%), and (ii) lower Logistics core PBT (-39%) from the seasonally weaker general cargo throughput (-7% to 24.1m MT) and cessation of Weifang Port contribution.
 
QoQ, 3Q19 core CNP surged 49% mainly contributed by the stronger Industrials’ core PBT contribution (+24%) from higher equipment deliveries and product support sales to the construction and mining sectors in Australia. This was despite the lower contribution from Motor Vehicles’ PBT (-22%) from seasonally weaker 3Q compared to 2Q, especially from lower sales from BMW and Ford operations in Singapore and lower profits from BMW operation in Australia. Logistics segment also recorded lower segment PBT (-27%), due to cessation of Weifang Port contribution.
 
Outlook. The Industrial division’s product support operations in Australia has continued to show growth as a result of the mining business recovery, whilst the China operation is benefiting from strong demand in the construction industry. Nevertheless, the Motors operation will continue to be impacted by strong competition and cautious consumer sentiment, whereas its Port operation will be facing competition from other ports as well as environmental controls implemented by local authorities limiting the operating time of the ports. SIME will continue to rationalize its logistics operations (with remaining 4 ports) which could see value unlocking of RM1.2b of its net book value (RM0.18/share). SIME had divested its previously 100%-owned Weifang Sime Darby Water Management for USD68m or c.MYR275m (at 1.3x PBV) through competitive bidding.
 
FY19-20E CNPs increased by 6-4%. We increased our FY19E and FY20E CNP by 6% and 4%, respectively, to account for the stronger Industrial contribution.
 
Maintain MARKET PERFORM with a higher target price of RM2.35, despite raising our earnings forecasts as we revised our Sum-of-Parts (SoP) composition, to reflect the weaker market condition for its China Motors division, which comprises 50% of SIME’s volume sales (ascribing lower targeted PER of 7x CY19 EPS, from 10x CY19 EPS Our TP implied PERs of 20x of FY19E EPS and 19.4x of FY20E EPS.
 
Risks to our call include: (i) lower-than-expected car sales volume, and (ii) unfavourable forex.

 

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