CIMB Research: Sime Darby top favourite among big-cap plantations (4197)

KUALA LUMPUR: CIMB Equities Research has Sime Darby as its preferred pick among Malaysian large-cap planters for its cheaper valuation versus peers, more aggressive M&A activity and plans to unlock value.

“We raise our FY13 earnings 2% and tweak our FY12 and FY14 earnings to account for our new CPO price assumptions. Our target price, which is based on a 10% discount to sum-of-parts, rises 10 sen to RM11.00,” it said on Wednesday.

CIMB Research said it maintained its Trading Buy with key catalysts being the potential for further M&As and higher CPO prices.

The research house raised its CPO price forecasts 3%-7% due to South America's smaller-than-expected soybean crop, subpar production from Malaysia and the ongoing drought in the US.

“We are now more positive on CPO prices in 2H due to lower stock levels in Malaysia, droughts in key planting regions in the US and the potential emergence of El Nino in 2H. If these two weather events occur in 2H, CPO prices could be pushed to RM3,400 to RM3,500/tonne,” it said.

CIMB Research said its new forecasts incorporate a mild weather event and could have upside if a stronger El Nino occurs.

It expects Sime to produce record FY6/12 earnings due to stronger performances by its key divisions.

“We are now more positive on the group's earnings prospects based on: 1) our more positive CPO price outlook; 2) additional earnings from its recent acquisitions of the E&O and Bucyrus franchises in Northern Australia; and 3) plans to acquire a 40% stake in the Battersea Power Station project in the UK,” it said.

CIMB Research said Sime's current strategy is to realise the full potential of its core businesses while pursuing expansion into related areas.

The group also plans to unlock value by listing certain core businesses, which could drive re-rating of the shares.

“We maintain our Trading Buy call. The stock is not an outright Outperform due to potential export tax policy risk in Malaysia,” it said.