Following the restructuring, the group in its current form will be broken up into three listed entities
KUALA LUMPUR: Sime Darby’s core net profit for the first quarter ended Sept 30, 2017 (1QFY18) as broadly in line with expectations, says CIMB Equities Research.
It said on Friday the key positive surprise came from strong pick-up in industrial earnings. However, this was partially offset by plans to cease its Vietnam motor operations.
“Sime plans to list the pure plays by Nov 30 and ex-date for the split is Nov 27. Maintain Add with an unchanged sum-of-parts based target price of RM10 per share,” it said.
CIMB Research said at final stage of its demerger plan Sime’s plans to create three independent pure plays to be listed on Bursa Malaysia are now targeted for completion on Nov 30, which is earlier than its previous timeline of December.
The group revealed that it will seek shareholders’ approval at an EGM on Nov 20 and plans to list the three entities by 30 Nov. The ex-date for the shares is on Nov 27.
“Sime Darby is expected to announce the final reference prices for the three entities on Nov 24. The group indicated that the listing reference price of SD Plantation and SD Property shares will fall within the percentage allocation range of 60%-68% for SD Plantation and 16-19% for SD Property.
“Sime Darby (post demerger)’s share price will be adjusted by subtracting the listing reference price of identified entities.
“Maintain Add, with unchanged SOP-based target price of RM10. We expect Sime Darby’s share price to rerate on its plans to separately list its plantation and property units.
Our target price values SD Plantations at RM44.6bil (RM6.57 a share), SD Properties at RM13bil (RM1.91 a share) and SD group at RM10.4bil (RM1.52 a share). Key risks are lower FFB output and the proposals falling through,” it said.
Commenting on the results, CIMB Research said that 1QFY18 core net profit (excluding one-off gains, reversal and impairment) grew 24% on-year, thanks to stronger performances from its plantation and industrial divisions.
The 1Q performance was broadly in line as it made up 25% of its and 23% of consensus’s full- year earnings.
Since 4QFY17, Sime has classified the plantation and property businesses as “discontinuing operations” due to its plans to list these units separately.
In 1QFY18 reported net profit, the group included (1) a gain of RM156mil from disposal of properties in Australia; (2) an impairment of the distribution rights in Vietnam motor of RM61mil; (3) a gain on disposal of Seriemas and MLDC property of RM348mil; (4) gain from land compensation of a property in China of RM41m; and (5) reversal of depreciation and amortisation of RM269mil.
“In total, we estimate the total one-offs in 1QFY18 to be a net gain of RM753mil.
“The main earnings driver for 1QFY18 Sime Darby posted a 23% on-year rise in its 1QFY6/18 core net profit, thanks to stronger plantation earnings,” it said.
Plantation earnings before interest and tax (EBIT) rose 53% on-year thanks to higher fresh fruit bunches (FFB) output and crude palm oil (CPO) price achieved.
The industrial division reported a 40% rise in EBIT (excluding land sale) thanks to higher equipment deliveries and product support sales in Australia.
Property EBIT benefitted from an RM87mil profit from its 40% stake in Battersea.
“The main positive surprise for us was a 64% on-year rise in order book of the industrial division to RM2.38bil due to upswing in demand for mining and construction equipment in Australia. Also, the Adani’s Carmichael Mine is expected to commence in 2018.
“The key negative surprise was the plan to exit the Vietnam auto business which led to a RM61m impairment charge in the quarter.
“On top of this, the group also indicated that it plans to sell around RM100m worth of cars’ inventory to the new distributor in Vietnam,” it said.
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