For the nine-months ended March 31, Sime Darby registered lower net earnings of RM1.3 billion, down 48% year-on-year compared to RM2.49 billion in the corresponding period a year earlier. The lower than expected CPO average selling price and fresh fruit bunch yield output largely contributed to the subdued performance.

The group's industrial division surprised on the upside while the other segment produced a mixed bag of results, it said in a research note issued on May 26.

"We expect Sime Darby's quarterly result to improve in the coming quarter as the recent rally in CPO prices to more than RM2,700 per tonne shall boost its plantation bottomline going forward."

"We thereby recommend a neutral on Sime Darby with a target price of RM7, based on FY10 earnings of 18 times, which is slightly higher than its mean historical price-to-earnings (PER) of 16 times. This is a slight premium as we expect Sime Darby to be a core holding of institutional funds as the CPO price remained firm and the broader market remained active," it said.

However, HwangDBS Vickers Research maintained its Sell recommendation on Sime Darby, pointing out the 3Q earnings were well below its and consensus expectations. Lower revenues, losses in some segments and associates, unrealised forex losses, and higher tax expense were the reasons for the weaker profit.

"Cash level remained low. Inventory levels have improved, but not as fast as we had anticipated, and the group’s high tax payment was also ahead of expectations. Including RM250 million capex, Sime’s cash level was flat at RM3.01 billion," it added.
 
HwangDBS Vickers Research said fter accounting for lower yields, higher taxes, high inventory levels, and lower contribution from associates, it reduced FY09F net profit by 13.9%.

However, FY10F profit was raised by 13.7% after imputing higher CPO prices of RM2,300 per tonne for both CY09F and CY10F.

"Following the earnings revision, our sum-of-parts derived target price is nudged up to RM6.00 (implying 15.3 times CY10F PE and 1.5 times price to book value), primarily due to higher price expectations for CY10F. Although group profit is expected to rebound by 28.6% in FY10F, the current share price has more than priced this in," it added.