Sime Darby 1QFY09 : Too early to tell…
• Too early to tell…
Annualised, Sime Darby’s earnings beat house estimates by 20% and street estimates by 29%. However, given the change in CPO since end 1Q, a comparison of such would not be fair. Earnings during the quarter were driven by the plantations segment, which achieved an CPO ASP of RM2,962 and the industrial services segment which saw a 39% boost in EBIT (driven by Australian and SE Asian ops). To note, Sime quoted their production per MT cost at RM1100 and said that they have not been engaging in forward sales. CPO sales defaults were reportedly minimal and in value amounted to less than RM10m.
• On other segments
The property segment had a damp quarter as expected and we expect that the Group will go slower on launches given the poor take ups in the property sector. The motor segment held up surprisingly well as car sales in China and the rest of SE Asia jumped 24% and 38%. This helped offset poor sales seen in Malaysia and Australasia. The utilities segment took a hit from payment of the windfall tax which is estimated at about RM25m and Sime Engineering’s earnings were flattish YoY.
• New FY09 KPI = RM1,900m
Sime adjusted down its RM3.7bn FY09 KPI to RM1900m that imputed an RM1700 per mt CPO price assumption. Notably, this is some RM500 below our assumption for the year of RM2300 which brings SIME’s KPI to make up only 65% of our full year estimates. While we plan to bring down our estimates a notch given the potentially longer than expected recovery in CPO prices, our CPO average price assumption would still be higher than theirs. We believe strongly that once the peak production cycle is over, CPO fundamentals will improve vastly. Also, a substitution effect will come into place as CPO starkly cheaper than soy oil currently (est. RM350 cheaper).
• Buy maintained, no change to earnings yet
We make no changes to our earnings as yet and will be coming out with new views and estimates in an upcoming sector report. For now, we still see much value in Sime Darby and believe that most expectations of a poor FY09 have been priced into the stock. We maintain our BUY call with a RM7.30 TP. We note that trading will likely be choppy in coming months similarly to CPO prices.