Sime Darby - BUY - 29 May 2008

Sime Darby - 9MFY08 results largely within expectations (Results Note)



Price: RM9.25

Target Price: RM12.90

Recommendation: BUY



· 9MFY08 core net profit of RM2,464.2m was largely within expectations at 70% of our earnings estimate of RM3,501.1m and 69% of consensus estimate of RM3,584.1m. Revenue, EBIT and pretax profit were all largely within expectations at between 75% and 78% of our full year estimates.

· Beneficiary of higher CPO selling prices. 9MFY08 core net profit of RM2,464.2m was 96% higher YoY primarily due to higher average CPO selling price of RM2,744/MT which was 71% higher YoY. Motor vehicle segment turned around with 9MFY08 PBIT of RM182.1m on higher sales in every region and non-recurrence of inventory write downs.

· Not all segments fared well. Property (-22%), industrial (0%) and energy & utilities (-24%) segments recorded negative growth YoY. Property segment experienced slower sales due to higher price revisions and. the industrial segment experienced slower sales in Australia, its primary market, due to severe flooding. Energy & utilities segment was set back by start up costs.

· Commendable QoQ growth nonetheless. Despite the less than sterling performance at the property, industrial and energy & utilities segments, 3QFY08 core net profit of RM1,089.5m was still 49% higher QoQ due to higher average CPO selling price realised of RM3,101/MT in 3QFY08 versus RM2,625/MT in 2QFY08.

· No revision in earnings estimates. We foresee seasonally higher FFB/CPO production in 4QFY08 and sustained high CPO selling prices (currently at circa RM3,600/MT) easily making up, if not exceeding, the remaining 30% of our earnings estimates. We believe our earnings estimates are still achievable.

· Maintain BUY call and RM12.90 target price based on an unchanged 17.5x FY09E PER. We will revise our earnings estimate and target price upwards should CPO selling prices sustain at current levels. Our RM11.90 RNAV/share derived fair value and gross dividend yield of 3% to 4% imply limited downside risk.







KENANGA INVESTMENT BANK BERHAD (15678-H)