28 November 2016 1QFY17 Results Review Sime Darby Berhad FFB production affected by El Nino INVESTMENT HIGHLIGHTS 1QFY17 core earnings below expectation Plantation division FFB volume is lower than expected Earnings estimate reduced Management KPI of RM2.20b net profit for FY17 Maintain NEUTRAL with lower TP of RM7.70 1QFY17 core earnings below expectation: At 9% of consensus and 11% of our full year FY17 Core Net Profit (CNP) estimate, Sime Darby Berhad (SIME) 1QFY16 CNP of RM207m was below expectation. The impact of Super El Nino has been greater than expected on SIME s plantation division causing the division s FFB volume to decline 24%yoy to 2.15m MT in 1QFY17. For our CNP calculation, we have excluded: i) RM198m gain on disposals (mainly RM131m from disposal of investment property in Singapore and RM35m gain from disposal of 10% stake in E&O), ii) forex gain of RM88m, iii) inventory write-down of RM38m and iv) net impairment of RM12m. Core earnings declined against last year: Compared to last year, 1QFY17 CNP declined 32%yoy to RM207m due to lower earnings from plantation division (EBIT -10%yoy to RM273m) and industrial division (EBIT -19%yoy to RM51m). Positively, motor division earnings improved (EBIT +53%yoy to RM130m) due to improved earnings in Malaysia, Singapore and New Zealand operations. Lastly, property division benefited from gain on disposals as explained previously. Core earnings estimate reduced: FY17 earnings CNP has been reduced by 1% to RM1.94b. We have assumed lower FFB yield for SIME s plantation division. Management KPI of RM2.20b net profit: The KPI is 10% higher than FY16 s target of RM2.00b. Key parameter behind the KPI is average CPO price of RM2650/MT. Maintain NEUTRAL with TP of RM7.70: Our Target Price is lowered in line with the Sum-Of-Parts based valuation (refer Page 3). Despite the weak core earnings in 1QFY17, its share price is supported by decent dividend yield of 3.3%. Maintain NEUTRAL Adjusted Target Price: RM7.70 (Previously RM7.75) RETURN STATS Price (25 Nov 2016) Target Price Expected Share Price Return RM8.10 RM7.70-4.9% Expected Dividend Yield +3.3% Expected Total Return -1.6% STOCK INFO KLCI 1627.26 Bursa / Bloomberg Board / Sector Syariah Compliant 4197 / SIME MK Main / Plantation Yes Issued shares (mil) 6643.43 Par Value (RM) 1.00 Market cap. (RM m) 53,811.75 Price over NA 1.53 52-wk price Range RM7 - RM8.33 Beta (against KLCI) 1.14 3-mth Avg Daily Vol 6.63m 3-mth Avg Daily Value Major Shareholders RM52.9m Skim Amanah Saham Bumiputera 41.24% EPF 10.99% Yayasan Pelaburan Bumiputra 5.99% KINDLY REFER TO THE LAST PAGE OF THIS PUBLICATION FOR IMPORTANT DISCLOSURES
INVESTMENT STATISTICS FYE Jun (RM m) FY13A FY14A FY15A FY16F FY17F Revenue 43,908 43,729 43,963 43,996 44,297 EBIT 4,219 3,542 3,067 3,132 3,164 PBT 3,965 3,003 2,816 2,676 2,745 Net Income 3,353 2,313 2,409 1,984 2,038 Core Net Income 3,270 2,071 1,500 1,937 1,991 EPS (sen) 55.50 37.68 38.43 30.13 30.94 Core EPS (sen) 54.13 33.74 23.93 29.42 30.23 Net DPS (sen) 36.0 25.0 27.0 26.8 26.9 Net Dvd Yield 4.4% 3.1% 3.3% 3.3% 3.3% Core PER 15.0 24.0 33.9 27.5 26.8 NTA/share (RM) 4.53 4.29 4.49 4.33 4.37 P/NTA 1.79 1.89 1.80 1.87 1.85 ROE 11.7% 7.6% 7.4% 6.0% 6.2% ROA 6.6% 3.8% 3.8% 3.5% 3.5%, MIDF Research Forecast SIME: 1QFY17 RESULTS SUMMARY FYE Jun (RM m, unless otherwise Quarterly Results Cumulative Comments stated) 1QFY17 %YoY %QoQ 3MFY17 %YoY Revenue 10099-1% -14% 10099-1% EBIT 670 14% -39% 670 14% PBT 629 36% -42% 629 36% Net Income 443 37% -61% 443 37% Core Net Income 207-32% -61% 207-32% EPS (sen) 7.0 35% -61% 7.0 35% Core EPS (sen) 3.3-33% -61% 3.3-33% Net DPS (sen) 0.0 NA NA 0.0 NA CPO Price (RM/MT) 2592 24% -2% 2592 24% FFB Volume ('k MT) 2154-24% 2% 2154-24% EBIT Margin 6.6% NA NA 6.6% NA PBT Margin 6.2% NA NA 6.2% NA Excludes RM198m gain on disposals (mainly RM131m from disposal of investment property in Singapore and RM35m gain from disposal of 10% stake in E&O), ii) forex gain of RM88m, iii) inventory writedown of RM38m and iv) net impairment of RM12m. Similar decline for Core Net Income and Core EPS 2
EBIT Breakdown by segment EBIT Breakdown by Segment (RM'm) Quarterly Results Cumulative Comments 1QFY17 %YoY %QoQ 3MFY17 %YoY Plantation 273-10% -48% 273-10% Property 172 69% -43% 172 69% Industrial 51-19% -60% 51-19% Motor 130 53% 36% 130 53% Energy & Utilities 12-29% -41% 12-29% Others 35-8% -157% 35-8% EBIT 673 11% -33% 673 11% MIDF RESEARCH Lower yoy due to 24% decline in FFB volume. Higher yoy due to gain on disposal of investment property in Singapore (RM131m) 10% stake in E&O (RM35m) Lower yoy due to lower deliveries to shipyard and marine sectors in Singapore and weak demand for equipment and product sales support from construction and mining sectors in China/Hong Kong. Higher profit from Malaysia, Singapore and New Zealand operations. SUM OF PARTS VALUATION Divisions Valuation Note Fair Value (RM 'm) Plantation 26.8x FY17E earnings Average of IOICORP and KLK Target PE 33,630 Industrial 24.0x FY17E earnings In line with Caterpillar Fwd PE 5,736 Motors 10.0x FY17E earnings In line with average PE for motor companies in China 2,929 Property 13.0x FY17E earnings In line with other big cap property company valuation 7,707 Energy and Utilities 10.0x FY17E earnings In line with average PE for utilities 702 Sum-Of-Parts (RM m) 50,704 No of shares (m) 6,585 TP (RM) 7.70 Source: MIDF Research 3
DAILY PRICE CHART Alan Lim, CFA alan.lim@midf.com.my 03-2173 8464 4
MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad (23878 - X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad) DISCLOSURES AND DISCLAIMER This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. This document may not be reproduced, distributed or published in any form or for any purpose. MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL SELL TRADING SELL Total return is expected to be >15% over the next 12 months. Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -15% and +15% over the next 12 months. Negative total return is expected to be -15% over the next 12 months. Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow. SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months. 5