PP 7767/09/2010(025354



Corporate Highlights
Com pany Upda te

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

7 May 2010 Share Price Fair Value Recom : : : RM8.58 RM9.70 Outperform (Maintained)
Bloomberg: SIME MK P/NTA (x) 2.6 2.6 2.4 2.3 P/CF* (x) 16.8 15.3 12.9 12.1 * Consensus Net ROE Gearing GDY (%) (%) (%) 10.6 10.7 2.6 10.9 17.2 2.6 12.6 20.1 3.4 12.7 24.1 4.0 Based On IBES Estimates


Sime Darby
Clarification On Cost Overrun At Bakun

Table 1 : Investment Statistics (SIME; Code: 4197) Net Core EPS Cons. FYE Turnover profit EPS Growth PER EPS* Jun (RMm) (RMm) (sen) (%) (x) (sen) 2009 31,013.9 2,255.2 37.5 (38.1) 22.9 2010f 31,855.9 2,377.5 39.6 5.4 21.7 45.0 2011f 35,294.9 2,904.6 48.3 22.2 17.8 54.0 2012f 39,784.0 3,056.2 50.9 5.2 16.9 59.0 Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC

Clarification on cost overrun at Bakun. Following on from our bulletin board comment yesterday and news update on 5 May regarding media reports that Sime Darby has incurred RM1-1.7bn in cost overruns from the Bakun hydro-electric dam project, we highlight that Sime Darby has a 35.7% stake in the Malaysia-China Hydro JV consortium and that construction works are already 96% completed. Final figure likely to be revealed in 3QFY06/10 results? Sime has been receiving periodic payments and agreed claims from the Government. In the past, some cost overruns were incurred due to increase in material costs and variations in design but these have been dealt with, as Sime has made provisions of RM130m for its share of cost overruns so far. We understand the task force set up to investigate the oil and gas division is closing next week (12 May) and any provision that needs to be made will likely be done in the upcoming 3QFY06/10 results (due end-May). While Sime has not finalised the total cost overrun figure yet, the figure is likely to be lower than the RM1.7bn quoted in the press. Impact: 7-9% off bottomline and 3 sen to fair value. As the government has given RM700m to the consortium for part of the cost overruns already and assuming the remaining RM1bn is provided for, Sime’s share is RM357m, based on its 35.7% stake. Deducting the RM130m provision already made, this would mean another RM227m in provisions, which would shave off 7-9% from Sime’s bottomline in FY10 and 3 sen/share from its SOP-based fair value. Forecasts. Unchanged, as we deem the potential provision as an EI. Risks: 1) 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) Slower-than-expected global economic recovery. Investment case. While we understand the current selldown of Sime’s shares may be due to lack of transparency, we believe the taskforce and management changes in the division is a sign that the company is taking these issues seriously. Sime’s share price has fallen by RM0.18/share (from RM8.76 when the news broke), or a loss in market value of RM1.08bn. This is 4-5x higher than the amount of provision required for the project and is, we believe, an overreaction. We would advise investors to wait out the storm and take the opportunity to buy the shares on weakness at a later stage. Maintain Outperform with unchanged fair value of RM9.70/share.
Please read important disclosures at the end of this report.

Issued Capital (m shares) Market Cap (RMm) Daily Trading Vol (m shs) 52wk Price Range (RM) Major Shareholders: Skim Amanah Saham Bumiputra Permodalan Nasional Bhd Employees Provident Fund FYE June EPS chg (%) Var to Cons (%) PE Band Chart
PER = 16x PER = 14x PER = 12x

6,009.4 51,560.7 11.7 6.25-9.24 (%) 30.9 17.0 11.7 FY11 FY12 -

FY10 -

(12.1) (10.5) (13.8)

Relative Performance To FBM KLCI

♦ ♦

Sime Darby FBM KLCI

Hoe Lee Leng (603) 92802184 hoe.lee.leng@rhb.com.my

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7 May 2010

Table 2. Sum-Of-Parts Breakdown Division Plantations Property Motor Heavy Equipment Energy & Utilities Others Net Cash / (Debt) TOTAL No. issued shares SOP/share (RM) Less: Holding co discount Fair Value/share (RM) Source: RHBRI

Valuation method CY10 PE 18x CY10 PE 14x CY10 PE 14x CY10 PE 14x CY10 PE 16x CY10 PE 14x End 2QFY10

Value (RMm) 43,216.9 5,310.3 3,168.5 11,210.8 3,841.6 272.0 (2,098.0) 64,922.1 6,009.4 10.80


(1.08) 9.72

Table 3. Earnings Forecasts FYE Jun (RMm) FY09a Turnover Turnover growth (%) Operating Costs Operating Profit EBITDA EBITDA margin (%) Depreciation Net Interest Associates Exceptionals Pretax Profit Tax PAT Minorities Discontinued ops Net Profit Core Net Profit 31,013.9 (8.9)

FY10F 31,855.9 2.7

FY11F 35,294.9 10.8

FY12F 39,784.0 12.7

Table 4. Forecast Assumptions FYE Jun FY10 CPO Price (RM/tonne) FFB Production Gth (%) Heavy Equipmt Op Profit Gth (%) Energy & Utilities Op Profit Gth (%) Property Op Profit Gth (%) Motor Op Profit Gth (%) 2,450 0.5 (14.2) 314.0 16.4 24.0

FY11F 2,600 2.5 19.6 13.6 26.1 5.0

FY12F 2,500 1.6 15.8 8.6 18.4 5.0

(28,901.9) (29,435.7) (32,218.7) (36,597.1) 3,126.1 3,944.3 18.3 (818.2) (93.9) 14.5 24.9 3,071.6 (730.8) 2,340.8 (60.7) 0.0 2,280.1 2,255.2 3,461.9 4,459.4 19.3 (997.5) (169.3) 100.0 0.0 3,392.6 (916.0) 2,476.6 (99.1) 0.0 2,377.5 2,377.5 4,230.2 5,333.4 20.3 (1,103.1) (243.6) 90.0 0.0 4,076.7 (1,019.2) 3,057.5 (152.9) 0.0 2,904.6 2,904.6 4,487.7 5,690.9 21.3 (1,203.2) (297.3) 99.0 0.0 4,289.5 (1,072.4) 3,217.1 (160.9) 0.0 3,056.2 3,056.2

Source: Company data, RHBRI estimates

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 : -

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Stock Ratings Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months. 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 FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months. Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months. Industry/Sector Ratings Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months. Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months. Underweight = Industry expected to underperform the FBM 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. securities, subject to the duties of confidentiality, will be made available upon request. Additional information on recommended

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.

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