CIMB: Sime remains an underperform

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CIMB Research considers Sime Darby Bhd’s first half (1HFY09) core net profit of RM1.89 billion which accounted for 60% of its full-year forecast and 52% of consensus estimates, to be broadly in line with its expectations but below market’s, as 2H should be weaker due to low crude palm oil (CPO) price and slower sales.As expected, Sime announced a flat interim dividend of five sen per share, it noted.The research house said Sime’s 2Q core net profit fell 52% year-on-year (y-o-y) to RM350 million due to weaker contributions from all its divisions except for property, industrial and motor.“Property sales benefited from the successful ‘Parade of Homes’ campaign but margin was lower due to higher marketing expenses. The industrial segment continued to record higher profit, thanks to better contributions from Hastings Deering.“The motor segment posted higher earnings due to RM50 million dividend income from its stake in BMW Malaysia. On quarter-on-quarter basis, all units posted weaker earnings with the exception of the motor division,” it said.CIMB Research said the 2Q results included RM99.7 million unrealised forex (foreign exchange) loss due to translation loss on the group’s overseas cash holdings, adding that earnings from the company’s energy and utilities business slumped 61% in 1H09 due to the RM23 million windfall profit levy and some provisions for its oil and gas project. “We were also taken aback by the 13% y-o-y decline in FFB (fresh fruit bunch) yields for its Indonesian estates in 1HFY09 and the larger loss of RM106 million from its downstream division.”The research house made no changes to its FY09-FY11 net profit forecasts for Sime, saying that the company was confident of achieving its net profit target of RM1.9 billion, which was in line with CIMB Research’s forecast.CIMB Research maintained its underperform recommendation on Sime at RM5.75 with an unchanged target price of RM4.80.“The stock remains an underperform due to its unexciting earnings prospects and expensive valuations. Sime Darby fell 10 sen to close at RM5.65 last Friday.