Sime Darby’s 9MFY06/13 earnings were within our, but below consensus forecasts. Management remains fairly upbeat on the whole, expecting stronger earnings in the 4Q from the property (back-ended progress billings and increased launches) and plantations (stronger prices and improved downstream margins) divisions. We maintain our BUY recommendation with rolled-forward SOP-based fair value of MYR10.70 (up from MYR10.40).  

-  In line with ours but below consensus. Sime Darby’s 9MFY06/13 core net profit was in line with our but below consensus estimates, coming in at 75% of our and 67% of consensus FY06/13 forecasts. Sime recorded an EI gain of MYR45.1m in 3QFY06/13, coming from the sale of its Pagoh land for the education hub.   

-  Briefing takeaways: (1) CPO prices expected to range between MYR2,400-2,600/tonne over next three months; (2) Increased FFB growth projections of 6-8% (from 4-6%) versus 7.6% in YTD-Apr; (3) Production costs 5-6% lower yoy in 9MFY06/13; (4) Property division expected to record a big 2.5x qoq jump in 4QFY13; (5) Sales at industrial division holding up, but margins weakening; and (6) Motor division did well in 3Q, but 4Q outlook more uncertain in Malaysia and Singapore. 

- FY06/13-15 forecasts have been revised downward by 11-15% after taking into account our recent sector-wide downgrade in CPO price assumptions. We now assume CPO prices of MYR2,400/tonne for FY06/13 (from MYR2,700 previously), MYR2,500/tonne for FY06/14 (from MYR2,900) and MYR2,600/tonne for FY06/15 (from MYR3,000). 

- Buy maintained. Post-earnings revision and after rolling forward our valuation period as well as updating for Sime’s latest net debt levels, our SOP-based fair value has been raised to MYR10.70 (from MYR10.40). We maintain our Buy recommendation on the stock as we believe Sime being an integrated player with stable contributions from non-plantation related industries will have an earnings buffer during a CPO price downturn, while its valuations, which are at a 2-3x PE discount to its peers, are undemanding.

Source: RHB