PP 7767/09/2010(025354)

RHB Research
Malaysia Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

New s Upda te
19 April 2010
MARKET DATELINE

Sime Darby Share Price

Fair Value
:
:
RM8.69
RM9.85
To List Units in Jakarta and Hong Kong? Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (SIME; Code: 4197) Bloomberg: SIME MK

Net Core EPS Cons. Net
FYE Turnover profit EPS gth PER EPS* P/NTA P/CF* ROE Gearing GDY
Jun (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 31,013.9 2,255.2 37.5 (38.1) 23.2 - 2.6 17.0 10.6 10.7 2.5
2010f 32,107.4 2,447.2 40.7 8.5 21.3 46.0 2.6 15.4 11.2 13.3 2.5
2011f 35,543.3 3,101.9 51.6 26.8 16.8 50.0 2.4 12.6 13.4 14.3 3.3
2012f 40,181.5 3,230.7 53.8 4.2 16.2 55.0 2.3 12.0 13.2 16.9 3.9
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ To list units in Jakarta and Hong Kong? According to a report in

Issued Capital (m shares) 6,009.4
the Edge weekly, Sime Darby is planning to list its Indonesian
Market Cap(RMm) 52,221.7
plantations on the Jakarta Stock Exchange in 2011, and its China and
Daily Trading Vol (m shs) 11.7
Hong Kong motor operations on the Hong Kong Stock Exchange in
52wk Price Range (RM) 6.25-9.24
2012. Sime is reportedly in the process of identifying strategic partners
Major Shareholders: (%)
to expand further into Indonesia, which could also see an injection of
Skim Amanah Saham
the local partner’s plantation assets into the listed vehicle. 30.9
Bumiputra
♦ Plantations listing may be positive, provided funds raised put to Permodalan Nasional Bhd 17.0
good use… We believe the listing of the Indonesian plantation assets Employees Provident Fund 11.7
would be positive for the group, as it could help unlock some value for
the group, given that the medium-term growth of Sime’s plantation FYE June FY10 FY11 FY12
division earnings are expected to come mainly from the Indonesian EPS chg (%) - - -
estates and not the Malaysian estates, due to its younger age profile. Var to Cons (%) (11.5) 3.2 (2.3)
At end-FY06/09, Sime’s planted Indonesian estates comprise about PE Band Chart
37% of its total planted landbank, while contributing about 30% to
total group FFB production, due to the younger age profile of the trees,
PER = 22x
which led to lower FFB yields of 16.6t/ha versus the 22.9t/ha achieved PER = 19x
in the Malaysian estates. We note that FFB yields in Indonesia have PER = 16x
PER = 13x
improved significantly in 1HFY10, having risen by 27% to 10.5t/ha
(from 8.3t/ha in 1HFY09), as the age profile of the trees improved and
as production recovered after the impact of the bad weather in the
previous year. Assuming about 30% of Sime’s plantations profit we
projected for FY10 comes from Indonesia, and applying a PE of 14.5x
to it (being 20% discount to our sector target PE of large Malaysian
Relative Performance To FBM KLCI
plantations companies and in line with the average PE for Indonesian
listed companies currently), we estimate Sime’s Indonesian listed
plantations could be worth RM6.5-7bn, at least. Nevertheless, while
listing this would help bring in some extra funds to the group, we do
not expect it to add any significant value to the Malaysian-listed entity, Sime Darby

unless the funds are put to use elsewhere with higher returns. FBM KLCI
♦ … while motor listing in HK may not add meaningful value. On
the listing of the motor division in Hong Kong, we believe this may not
necessarily be a good idea, given that the operating environment in
China is intensely competitive and that sustainability of earnings and
therefore, added value from listing it, may not be meaningful.
Currently China contributes 41% to Sime’s motor division earnings and is
the fastest growing market for Sime, but we note that margins are
diminishing, at just 3.3% in 1HFY10 (versus 5.9% in 1HFY09).
♦ Risks: (1) a reversal in crude oil price trend resulting in reversal of
CPO and other vegetable oils price trend; (2) weather abnormalities;
(3) change in emphasis on implementing global biofuel mandates; and
(4) a slower-than-expected global economic recovery.
♦ Forecasts and recommendation. Our forecasts are unchanged. We Hoe Lee Leng
maintain our SOP-based fair value of RM9.85 and Outperform (603) 92802184
recommendation, on the back of further upside via stronger operational hoe.lee.leng@rhb.com.my
efficiencies, future positive M&A activities and better merger synergies.
Please read important disclosures at the end of this report.

Page 1 of 3

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
 19 April 2010

Table 2. Sum-Of-Parts Breakdown

Division Valuation method Value (RMm)
Plantations CY10 PE 18x 45,744.3
Property CY10 PE 13.5x 4,866.8
Motor CY10 PE 12x 2,715.9
Heavy Equipment CY10 PE 13.5x 10,810.5
Energy & Utilities CY10 PE 15x 3,601.5
Others CY10 PE 12x 233.2
Net Cash / (Debt) End 2QFY10 (2,098.0)
TOTAL 65,874.1

No. issued shares 6,009.4

SOP/share (RM) 10.96

Less: Holding co discount 10% (1.10)

Fair Value/share (RM) 9.87

Source: RHBRI

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE Jun (RMm) FY09a FY10F FY11F FY12F FYE Jun FY10 FY11F FY12F

Turnover 31,013.9 32,107.4 35,543.3 40,181.5 CPO Price (RM/tonne) 2,450 2,600 2,500
Turnover growth (%) (8.9) 3.5 10.7 13.0 FFB Production Gth (%) 4.5 2.5 2.9

Operating Costs (28,901.9) (29,703.0) (32,227.8) (36,805.2) Heavy Equipmt Op Profit Gth (14.2) 19.6 15.8
(%)
Operating Profit 3,126.1 3,454.3 4,477.8 4,690.2 Energy & Utilities Op Profit 314.0 13.6 8.6
Gth (%)
Property Op Profit Gth (%) 10.8 25.6 18.2
EBITDA 3,944.3 4,404.4 5,520.1 5,820.0 Motor Op Profit Gth (%) 24.0 5.0 5.0
EBITDA margin (%) 18.3 19.3 20.3 21.3

Depreciation (818.2) (950.1) (1,042.3) (1,129.8)

Net Interest (93.9) (155.4) (214.3) (254.8)
Associates 14.5 100.0 90.0 99.0
Exceptionals 24.9 0.0 0.0 0.0

Pretax Profit 3,071.6 3,398.9 4,353.5 4,534.4

Tax (730.8) (849.7) (1,088.4) (1,133.6)
PAT 2,340.8 2,549.2 3,265.1 3,400.8
Minorities (60.7) (102.0) (163.3) (170.0)
Discontinued ops 0.0 0.0 0.0 0.0
Net Profit 2,280.1 2,447.2 3,101.9 3,230.7
Core Net Profit 2,255.2 2,447.2 3,101.9 3,230.7

Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the KLCI benchmark by greater than five percentage points over the next 6-12 months.

Page 2 of 3

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

Page 3 of 3

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com