INVESTMENT HIGHLIGHTS

• 1QFY18 earnings within expectations

• Pure play to complete by end November

• Selling RM500m RLS in Prolintas to PNB for RM333m cash

• Earnings estimates unchanged

• Maintain NEUTRAL with TP of RM9.25

1QFY18 earnings within expectations. Sime Darby Berhad (SIME) 1QFY18 core net profit of RM832m makes up 35% of consensus and 34% of our full year FY18 earnings estimates. We deem the result to be within expectation as the 1QFY18 earnings were supported by contribution from Battersea Phase 1 which should not recur in 2HFY18. Note that Battersea Phase 1 contributed RM87m which makes up 76% of total property development core EBIT of RM115m. We have excluded the following in our core net profit calculation: i) RM348m gain on disposals in the property division, ii) RM156m gain on disposal of Australian properties in the industrial division, iii) RM41m gain from land compensation in the motors division property in Shanghai, China, and iv) impairment of RM61m in the motors division distribution rights in Vietnam.

Pure play to complete by end November. There will be an EGM on 20-Nov after which the reference price for Sime Darby Plantation, Sime Darby Property and the future Sime Darby Berhad will be announced. The Company is targeting end November for the listing and issuance of prospectus.

Selling RM500m RLS in Prolintas to PNB for RM333m cash. SIME has announced that it is selling its RM500m Zero Coupon Redeemable Loan Stocks (RLS) in Prolintas Expressway Sdn Bhd (PESB) to PNB for RM333m cash. This is an RPT as PESB is 100% owned by PNB which is also a major shareholder in SIME. We are neutral on the news as the deal does not result in any gain or loss to SIME. SIME plans to use the proceeds from the sale to pare down its borrowings.

Earnings estimates unchanged. We maintain both our FY18 CNP estimate of RM2.47b as well as FY19 CNP estimate of RM2.48b.

Maintain Neutral with TP of RM9.25. Although SIME PE is relatively high at 24.8x, we expect the decent dividend yield and expected value creation from the demerger exercise to support the share price.

Source: MIDF Research - 17 Nov 2017