PETALING JAYA: Despite the expectation of slower earnings growth in the financial year ending June 30, 2013 (FY13) following a sterling performance thus far, news flow on potential corporate actions such as spin-offs and mergers and acquisition could attract investors to diversified group Sime Darby Bhd.
Initiating its coverage on the company, Alliance Research noted that Sime Darby had its “fair share of trials and tribulations” in the past. “But results for the first half of FY12 revealed that the group is at last firing on all cylinders,” it said in a report.
Yields were improving in the plantation segment, the industrial and motor segment’s earnings had more than doubled, and other divisions like property, energy and utilities (E&U) and even healthcare were showing steady earnings, the research outfit said.
Sime Darby posted a 42% jump in net profit to RM2.2bil for the six months ended Dec 31, 2011 on the back of sterling performances at the conglomerate’s six core divisions. Its revenue increased 20% to RM22.45bil for the period.
“With lumpy provisions out of the way and non-core and loss-making businesses sold, we believe that spin-off of segments like industrial or property to enhance shareholders’ value could be on the cards next,” Alliance said.
Besides that, M&A activities might also be on the cards as the group was working to shape up its E&U segment with more concession assets, it added.
For the first half ending June 30, the group’s plantation division recorded a 38% rise in operating profit to RM1.8bil on higher realised crude palm oil (CPO) prices and operational efficiency improvements.
Its industrial division posted a 38% increase in operating profit to RM628mil on the back of robust activity in the mining, logging and construction sectors in Australia and Malaysia.
The group’s motor division saw a 11% growth in operating profit to RM308mil while its property division posted a 46% increase in operating profit to RM193mil.
As for the energy and utilities division, its operating profit grew 127% to RM217mil, primarily due to the recognition of deferred revenue of RM99mil from the group’s Malaysian power plant.
Among the company’s key risks, Alliance said weather shocks and changes in government regulations could cause fluctuation in plantation earnings while its industrial segment could be adversely affected by any moderation in demand for coal.
China is currently the second-largest export destination for Australian coal and there had been some reports of China reducing coal usage for power production, the research house noted.
Slower discretionary spending amid economic slowdown could also hurt motor and property sales, it said.
At the close yesterday, Sime Darby shares finished 2 sen down to RM9.89.
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