This article first appeared in The Edge Financial Daily on February 25, 2019
Sime Darby Bhd
(Feb 22, RM2.28)
Maintain buy with a target price (TP) of RM2.78: Sime Darby Bhd’s first half of financial year 2019’s (1HFY19) results came in above expectations. After excluding gain on disposal and other exceptional items, the core net profit rose by 70.1% year-on-year (y-o-y) to RM597 million. This accounted for 59% and 66% of our and consensus full-year estimates.
The commendable results were mainly driven by the industrial division and lower effective tax rate due to the change in real property gains tax (RPGT) in Malaysia.
The 1HFY19 revenue increased by six per cent to RM11.2 billion. Reported profit before interest and tax (PBIT) surged by 77.8% y-o-y to RM240 million, including the RM15 million refund of import duties and taxes from Vietnamese operations in 1HFY19 and gains from land disposals of RM50 million and previous losses from Vietnam (RM184 million) in 1HFY18.
Excluding all these items, core PBIT fell 16.4% y-o-y to RM225 million as a result of the softening of the industry. Meanwhile, Malaysia operations performed well and contributed around RM70 million to the division in 1HFY19 thanks to zero-rated GST period.
However, the 1HFY19 PBIT fell to RM366 million (-6.9% y-o-y). Excluding the RM165 million gain from property sales in 1HFY18 and RM18 million in 1HFY19, core PBIT grew 52.6% y-o-y to RM348 million.
The strong performance was underpinned by higher equipment deliveries to the mining and construction sectors in Australia as well as higher margins from engines and product support in China.
Therefore, we tweak our FY19-FY21 earnings forecasts higher by 1.2% to 9.0% after taking into account the lower effective tax rate as well as higher contributions from the industrial division and maintain our call to “buy” on Sime Darby Bhd with a higher TP of RM2.78 per/share, based on standard operating procedure valuations. We like the group for its global presence and diversified businesses. — TA Securities, Feb 22