KUALA LUMPUR: While most analysts have maintained their calls on Sime Darby Bhd
, they have lowered their target price for the plantation giant following the release of its latest results for FY ended June 30, 2015 (FY15).
CIMB Equities Research, Affin Hwang Capital Research and AmResearch maintained a “Hold” call on Sime Darby while PublicInvest Research maintained a “Neutral” call.
CIMB Research said SIme Darby’s FY15’s core net profit was 5% above the research house forecast and 3% above consensus. The better performance was due to stronger-than-expected plantation contributions and lower effective tax rate. The group expects FY16 to be another challenging year and is exploring ways of strengthening its balance sheet and reduce operating costs.
“We cut our FY16-18 net profit forecasts by 10%-12% to reflect weaker industrial and motor prospects. As a result, our sum-of-parts (SOP)-based target price falls to RM8.08 per share.
“We are keeping our ‘hold’ rating as we see share price support from its rich assets and final dividend yields of 2.6% or 19 sen per share,” CIMB Research said.
In addition, CIMB Research said it was slightly negative following the briefing as the group did not rule out a potential rights issue, which may be earnings-per-share dilutive, in a bid to strengthen its balance sheet position.
However, management stressed that this was not the only option the group was exploring. The other potential options to improve its balance sheet are to monetise some of its assets that are low yielding or fund future potential merger and acquisition via borrowings. The group is keen to reduce its current debt-to-equity ratio of 58% as at June 30 to 30%-40%, to retain its current high debt ratings with debt agencies.
AmResearch, which is also maintaining its “hold” call on Sime Darby, has ascribed a lower fair value of RM8 a share versus RM9 previously. It said this was based on a 20% discount to its downward revised sum-of-parts value of RM10 a share amid a challenging economic environment.
The research house said Sime Darby posted a core net profit of RM851mil for the fourth quarter ended June 30, bringing the FY15 core earnings to RM1.805bil.
“The core number came in at 12% above our expectations but was 9% below consensus estimate. It proposed a final single-tier dividend of 19 sen per share (yield of 2.55%), bringing the total for the year to 25 sen a share – for a payout of 66%,” it said.
Meanwhile, Affin Hwang said as at June 30, Sime Darby’s borrowings had surged to RM18.063bil and the debt-to-equity ratio had increased to 58%.
While emphasising that the group’s gearing was still not excessive and core businesses are generating strong operating cashflows, management intends to maintain Sime’s strong debt ratings and was still weighing various options to trim borrowings, including asset monetisation as well as equity issues.
“Based on our revised calendarised 2016 earnings-per-share forecast of 47.4 sen and an unchanged price-earnings (PE) target of 16 times, we cut our 12-month target price for Sime Darby to RM7.59 from RM8.28. -
The share price has retreated with the recent global equity market corrections and we maintain our ‘hold’ rating,” Affin Hwang said.
The research house said potential share price drivers included a rebound in crude palm oil and mining product prices an accelerated launch of the Malaysia Vision Valley project, which encompasses around 130,000 acres for development and 55,000 acres of Sime Darby massive landbank and lumpy contributions from the Battersea project from second half of FY16, which could be enhanced if the pound remains strong.
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