SIME – Fundamental Analysis (25 May 2015)

SIME Analysis:-

Excel – http://1drv.ms/1FPgUct

Notes – http://tinyurl.com/o5fhazt

My View:-

  • Valuation:
    • Absolute EY%:
      • Trailing:
        • FY14 (EPS: 0.512) – Fair value 10.41 (Fair Value Uncertainty: MEDIUM)
        • R4Q (EPS: 0.412) – Fair value 8.37 (Fair Value Uncertainty: HIGH)
      • Forward:
        • FY15 (EPS: 0.337) – Fair value 6.84 (Fair Value Uncertainty: VERY HIGH)
        • FY16 (EPS: 0.443) – Fair value 9 (Fair Value Uncertainty: HIGH)
      • EPS applied to reach the current stock price (8.53): 0.42
  • Weak commodity prices, volatile FX and slow economic growth in Europe and China – SIME earnings outlook in FY15 will be very challenging.
    • For 3QFY15, plantation’s profit fell by -78.1%yoy to RM99.6m. This was attributable to lower CPO sales volume of -20.2%yoy and exacerbated by the decline in FFB production in Malaysia (-6%yoy) and Indonesia (-19%yoy). The midstream and downstream operations however showed an improvement due to favorable results in the oils and fats segment. This, however, was insufficient to offset the weak performance of upstream operation.
    • For 3QFY15, profit from the Australasia operation declined -85%yoy due to lower equipment deliveries and product support sales.
    • In the Industrial segment, major capex cuts have started to impact even the maintenance business. Order book is down to a low of RM2.4bn.
    • The Motor and Property segments outlook remains weak, underscored by austerity measures in China, and in Malaysia, declining consumer sentiment (partly due to GST) and stricter conditions on mortgage loans.
  • Another concern is SIME’s ROIC declined from 11.1% to 9.7%, and FY14 ROIC is below WACC too. This is quite worrying.
    • Besides, its CROIC was lower than WACC since 2009.
    • SIME is losing its competitive advantage
  • With 62% of NBPOL’s planted area are within the age of 0-12 years old, the earnings prospects of Sime Darby’s plantation arm is expected to be brighter.
  • I think valuation of SIME is not really attractive now. My average price for owning SIME is low, so I will continue to hold SIME.

Latest Financial – Q3 2015 Financial Report (22 May 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4746817

At the time of writing, I owned shares of SIME.

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2 thoughts on “SIME – Fundamental Analysis (25 May 2015)

  1. Good Morning LC,
    It seems Sime Darby management have lots of to do to improve their business units to ensure they remain competitive.
    Despite their plantation size, they are having difficulty to ensure the high yields for their crops.
    Sometime being efficient is better than being big.

    Thank you.

    Liked by 1 person

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