Sime Darby cut to 'market perform' by Kenanga Research

PETALING JAYA: Kenanga Research has downgraded Sime Darby Bhd to “market perform” with a lower target price of RM9.50 as its valuations have fully priced into the proposed listings of its plantation and property units.
The research house said this is in view of the recent share price rally in anticipation of the demerger of the plantation and property businesses.
Nonetheless, Kenanga Research is neutral on the proposed listing structure as it expects limited benefit to existing shareholders aside from potential value creation upon listing, which is targeted for completion by early 2018.
The deconsolidation exercise will not involve the issuance of new shares, but distribution of shares in Sime Darby Plantation and Sime Darby Property through a dividend-in-specie scheme to Sime Darby Bhd shareholders.
Operationally, Kenanga Research noted that Sime Darby’s first-half core net profit of RM892 million came in below expectations, making up 40% of consensus RM2.24 billion and 36% of its RM2.50 billion forecast, largely due to weaker-than-expected industrial and logistics performance coupled with continued weakness in the local property market.
Hence, the research house has also cut the group’s FY17 and FY18 core net profit forecast to RM2.33 billion and RM2.29 billion, respectively due to lower margin assumption on the industrial and logistics segments.