PUBLICINVEST Research lowered its call on Sime Darby Bhd from “outperform” to “neutral” after revising crude palm oil (CPO) price assumption for the conglomerate from RM2,750 to RM2,500 per tonne for financial year (FY) 2015 and RM2,550 per tonne for FY16.
The research house said Sime Darby’s FY14 core net profit of RM3.08 billion is in line with its and consensus forecasts, accounting for 97 per cent and 101 per cent of its and consensus full-year estimates, respectively.
However, the results were lower by 4.3 per cent compared with FY13 due to weaker earnings contribution from the plantation sector
(-6.6 per cent), industrial sector (-22.2 per cent) and motors sector (-10.8 per cent), despite the property sector earnings growing 4.9 per cent.
The management also announced a final dividend of 30 sen, three sen higher compared with fourth quarter (Q4) of FY13.
4QFY14 revenue quarter-on-quarter (QoQ) gained 21.5 per cent but year-on-year (YoY) dropped 1.9 per cent.
For 4QFY14, although the plantation sector rose 0.6 per cent, motors sector jumped 7.2 per cent and property sector added 29.2 per cent, industrial sales were badly hit, down 25 per cent to RM2.7 billion.
Average CPO price improved from RM2,251 per tonne to RM2,474 per tonne while fresh fruit bunches production was up from 2.01 million tonnes to 2.28 million tonnes.
Meanwhile, the lower industrial contribution was mainly attributed to a decline in equipment deliveries and production support sales in Australasia, which was partly mitigated by better demand in other regions.
On the other hand, the motor segment posted a seven per cent gain by registering stronger BMW sales in China/Hong Kong and also saw increased contribution from the newly acquired BMW operations and trucks operations in Australia/New Zealand.
Its Malaysian and Southeast Asian region continued to suffer, dampened by stiff competition in the mass brand market as well as tighter credit policy in Singapore and political unrest in Thailand.
The property segment registered impressive sales, attributed to the stronger sales recognition from City of Elmina developments as well as the commencement of the construction work at the Pagoh Education Hub project.
The fourth quarter core net profit QoQ added 21.3 per cent and YoY increased 8.8 per cent.
All major segments contributed to higher earnings except for the industry and energy and utilities segments, which were down 45 per cent and 73 per cent, respectively.
PublicInvest said Sime Darby expects to list its motor arm by the first quarter of next year and plans to raise between US$900 million and US$1 billion (RM2.8 billion and RM3.1 billion) from the initial public offering.
Commenting on the mining prospects in Australia, Sime Darby does not see a better outlook for FY15. It also plans to inject renewable energy businesses from plantation into the energy and utilities segment.
Given the current low CPO prices, it is currently in talks with the government to promote more biodiesel consumption with a higher mandate.