Both the research houses maintained their sell call on the counter after the world’s largest listed planter posted lower-than-consensus 3Q results.

Sime’s earnings plunged 86% to RM150.57 million in the 3Q09 on the back of RM7.47 billion revenue. Including RM250 million capital expenditure, Sime’s cash level was flat at RM3.01 billion.

HwangDBS said although inventory levels have improved, it was not “as fast” as it had anticipated, adding that Sime’s tax payment was also ahead of expectations.

The house said based on lower yields, lower-than-spot realised prices, higher taxes, high inventory levels and lower contribution from associates, it has reduced Sime’s FY09 net profit by 13.9% to RM1.83 billion.

“We still expect palm oil prices to moderate in 2H09 in line with seasonally higher production, but the drop may be lower than expected, primarily in anticipation of smaller-than-expected Argentine soybean production,” it said in a note yesterday.

Accordingly, HwangDBS raised its FY09 and FY10F crude palm oil (CPO) prices to RM2,300 per tonne from RM1,900 and RM2,000, respectively.

The house also raised Sime’s FY10 profit by 13.7% to RM2.36 billion after imputing higher CPO prices of RM2,300 per tonne for both CY09 and CY10.

It said following the earnings revision, its SOP-derived target price is nudged up to RM6 primarily due to higher price expectations for CY10. It said although group profit is expected to rebound by 28.6% in FY10, the current share price has priced this in.

HwangDBS also noted that Sime has revised its key performance indicator (KPI) to a net profit target of RM1.9 billion for FY09.

OSK Research, meanwhile, said its FY09 forecast appeared over-optimistic in light of the Sime’s poor 3Q results.

OSK noted that Sime’s annualised nine-month core earnings were 30% below its full-year forecast and 17% below consensus.

On that note, it said it would cut Sime’s earnings forecast to RM2.07 billion on a worse-than-expected plantation performance and higher-than-expected tax rate.
The research firm said after trimming its forecast, Sime now trades at 19.7 times FY10 and 18.4 times FY11 earnings, making it among the most expensive plantation-related stocks and KLCI heavyweights.

“Management believes there will be clearer synergistic benefits in the coming FY, which we think will at best lower the FY10 price-to-earnings ratio (PER) to a still uncompelling 16.7 times,” it added.

OSK adjusted its target PE upwards to 14 times against CY10 earnings, giving a revised target price of RM5.10.  
Sime closed 10 sen down at RM6.85 yesterday.

This article appeared in The Edge Financial Daily, May 27, 2009.