SIME (4197) - Sime Darby Bhd - Macro headwinds hit 2QFY15
Target RM9.07 (Stock Rating: HOLD)
Sime's 1HFY6/15 core net profit was below expectations, forming only 28% of our full-year estimate and 32% of consensus. The main negative surprise was the weaker industrial and plantation earnings. We cut our FY15-17 EPS forecasts by 19-22%, mainly to reflect the weaker industrial earnings, lower FFB output and CPO prices. This led us to lower our SOP-based target price by 5% to RM9.07. The weaker earnings are likely to be partially offset by potential acquisitions and the planned listing of certain key businesses. As such, we keep our Hold rating on the stock.
Key results highlights
2QFY15 core net profit fell 57% yoy due to weaker contributions from all divisions except property. The biggest drop in 2Q EBIT came from the plantation and industrial divisions, which recorded a 46% and 53% yoy slump in earnings and were below our expectations. The weaker plantation earnings were due to lower-than-expected FFB output and lower ASP achieved for CPO. FFB output fell 15% yoy in 2QFY15 and 6% in 1HFY15. This is significantly lower than the group’s guidance of 5% growth. Sime indicated that this was due partly to poor weather at its estates, shift in cropping patterns and higher replanting activity. Average CPO price achieved in 1HFY14 of RM2,154 per tonne was below our forecast of RM2,400 per tonne. The industrial division posted its weakest earnings since Sime’s merger in 2008 due to lower equipment deliveries and weaker profit margin from support sales.
Key briefing highlights
The group remains confident of achieving its FY15 KPI of RM2.5bn net profit and expects the plantation and property divisions to deliver stronger earnings in 2HFY15. It now expects flattish FFB output for FY15 and projects CPO price range of RM2,300-2,500 per tonne over the next four months. It also mentioned that it has deferred the plan for the motor division IPO to 2HCY15. Its 6 sen interim dividend is in line with our forecast.
Cutting EPS forecasts by 19-22%
We cut our FY15-17 EPS forecasts by 19-22% due to the more challenging operating environment that Sime’s key divisions face. The group indicated that it is improving efficiency and reducing costs to withstand the macro challenges (lower CPO and coal prices) facing its key divisions.
Source: CIMB Daybreak - 27 February 2015
Target RM9.07 (Stock Rating: HOLD)
Sime's 1HFY6/15 core net profit was below expectations, forming only 28% of our full-year estimate and 32% of consensus. The main negative surprise was the weaker industrial and plantation earnings. We cut our FY15-17 EPS forecasts by 19-22%, mainly to reflect the weaker industrial earnings, lower FFB output and CPO prices. This led us to lower our SOP-based target price by 5% to RM9.07. The weaker earnings are likely to be partially offset by potential acquisitions and the planned listing of certain key businesses. As such, we keep our Hold rating on the stock.
Key results highlights
2QFY15 core net profit fell 57% yoy due to weaker contributions from all divisions except property. The biggest drop in 2Q EBIT came from the plantation and industrial divisions, which recorded a 46% and 53% yoy slump in earnings and were below our expectations. The weaker plantation earnings were due to lower-than-expected FFB output and lower ASP achieved for CPO. FFB output fell 15% yoy in 2QFY15 and 6% in 1HFY15. This is significantly lower than the group’s guidance of 5% growth. Sime indicated that this was due partly to poor weather at its estates, shift in cropping patterns and higher replanting activity. Average CPO price achieved in 1HFY14 of RM2,154 per tonne was below our forecast of RM2,400 per tonne. The industrial division posted its weakest earnings since Sime’s merger in 2008 due to lower equipment deliveries and weaker profit margin from support sales.
Key briefing highlights
The group remains confident of achieving its FY15 KPI of RM2.5bn net profit and expects the plantation and property divisions to deliver stronger earnings in 2HFY15. It now expects flattish FFB output for FY15 and projects CPO price range of RM2,300-2,500 per tonne over the next four months. It also mentioned that it has deferred the plan for the motor division IPO to 2HCY15. Its 6 sen interim dividend is in line with our forecast.
Cutting EPS forecasts by 19-22%
We cut our FY15-17 EPS forecasts by 19-22% due to the more challenging operating environment that Sime’s key divisions face. The group indicated that it is improving efficiency and reducing costs to withstand the macro challenges (lower CPO and coal prices) facing its key divisions.
Source: CIMB Daybreak - 27 February 2015
