Wednesday, February 9, 2011

Sime Darby’s share price is fairly valued based on its KPI expectations

Sime Darby, a conglomerate operating in the divisions of plantation, property, industrial, motors, energy & utilities, and healthcare has set a Key Performance Indicator (KPI) NPAT of RM2.5b for FY ending 30 June 2011. This comes after operating losses of RM1752m for FY2010 in the energy and utilities sector. Total provisions for losses and impairment total RM2085.7m for both quarters March (RM1308.4m) and June 2010 (RM777.3m) in the energy and utilities sector.
Sime Darby’s Key Financial Information:


30/9/2010
30/6/2010
31/3/2010
31/12/2009
30/9/2009

RM'000
RM'000
RM'000
RM'000
RM'000
Revenue
8,782,934
9,211,813
7,570,697
8,432,702
7,736,401
Profit/(loss) before tax
940,644
25,049
-48,933
783,152
982,236
Profit/(loss) for the period
687,900
-53,258
-277,537
464,796
720,808
Profit/(loss) attributable to ordinary equity holders of the parent
654,742
-77,353
-308,630
428,191
684,641

cents
cents
cents
cents
cents
Basic earnings/(loss) per share (Subunit)
10.89
-1.29
-5.14
7.13
11.39
Proposed/Declared dividend per share (Subunit)
0
3
0
7
0


Will they be able to achieve the KPI?
The pressure is definitely on since Sime is a huge conglomerate and its reputation is at stake after suffering two consecutive quarters of losses.
Upside: Plantation sector which accounts for 29% of group revenue in the latest quarter will see significant improvement in the upcoming reporting period due to the increase in CPO price. The average CPO for the last reporting quarter was RM2511 vs. the average spot settlement price of CPO in the months Oct, Nov and Dec is RM3222; representing an increase of 28%. This will significantly improve revenue contributions from the plantation segment.
The energy and utilities division is back in the black, showing significant improvements in turning around this sector.
Sime also plans to strengthen corporate governance and thus is implementing a two-tier board structure for the purpose of improving accountability.


sime
shares
6009500000

Earnings FY 2011
RM2500000000

EPS
RM0.416

Share Price 8/2/11
RM9.35

PE
22.48


Fair Value: Assuming that Sime meets its KPI, its share price currently reflects a PE of 22.48. Local industry PE is averaging at 19 excluding outliers.

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