INVESTMENT HIGHLIGHTS

• 9MFY17 core earnings met expectations

• Good performance from plantation and motors divisions

• But property and industrial division earnings declined

• Pure play execution is on track

• Core earnings estimate maintained

• Maintain NEUTRAL with TP of RM9.00

9MFY17 core earnings met expectations: Sime Darby Berhad (SIME) 9MFY17 Core Net Profit (CNP) of RM1.60b matched expectations as it makes up 71% of ours and 69% of consensus full year earnings estimate. For our CNP calculation, we have excluded: i) RM215m inventory writedown, ii) forex gain of RM155m, iii) gain on disposal of RM246m and iv) net impairment of RM1m. As expected, no dividend was announced for the 3QFY17.

Core earnings improved yoy due to good performance from plantation and motors division: Compared to last year, 9MFY17 CNP increased 64%yoy to RM1.60b due to improved earnings from plantation (EBIT +184%yoy to RM1.57b) and motors (EBIT +29%yoy to RM392m) divisions. Plantation division benefited from better CPO price (+35% yoy to RM2861 per MT). Motors division improved EBIT is due to higher earnings from Malaysia, China/Hong Kong and Australia/New Zealand markets.

But property and industrial division earnings declined. Property division EBIT declined 51%yoy to RM376m as last year earnings was boosted by gain on disposal of multiple assets amounting to RM537m. Industrial division EBIT slipped 11%yoy to RM188m due to lower engine deliveries to oil and gas and marine sectors in Singapore.

Pure play execution is on track. Recall that SIME has announced its plan to demerge the current SIME into three pure plays on 26-Jan. These will be Plantation, Property and Trading & Logistics. As part of the demerger plan, the Company has completed the restructuring of the USD800m multi currency sukuk on 23rd May 2017 and aims to complete the listing of Pure Plays by end 2017.

Core earnings estimate maintained: FY17 earnings CNP is maintained at RM2.25b.

Source: MIDF Research - 1 Jun 2017