STOCK FOCUS OF THE DAY
Sime Darby : Auto to the fore HOLD
We value Sime Darby Group with an RNAV-based FV of RM2.10/share, based on a conservative FY19PE multiple of 12x on its motor segment. We project for net profit to grow 2-9% annually in the next 2-3 years premised on the strength of its BMW distributorship in the key markets of China and Malaysia, its dealership of Caterpillar heavy equipment in APAC and unrealized potential of its ports in China.
We note three points: 1) The motor segment relies on brand and geographical diversity, but the group's margins are weakest here given its position at the end of the value chain. 2) The logistics segment contributes a miniscule percentage of the group's topline but sees significantly stronger margins. 3) While the recent demerger of the plantation and property businesses should improve the clarity in earnings of Sime Darby's continuing operations, there is still room to rationalize.
Sime Darby's gearing improved to a moderate 0.20x (from 0.32x) following the demerger as its borrowings stand at RM3.2bil from RM13.1bil before next to RM2bil in cash. The perpetual sukuk of RM2.2bil under Sime Darby Plantation will also be taken off its books.
Others :
Sapura Energy : 3QFY18 loss heralds a bleak outlook next year HOLD
STOCKS ON RADAR
Malaysia Marine & Heavy Engineering, DKSH, Genting Malaysia, Ajinomoto
HIGHLIGHTS NEWS
Retail Industry : Retail growth target is cut again to 2.2%
LCTH : Major shareholder to take it private, offers 58 sen per share
MQ Tech : Seeks diversification into casino marketing services
Gamuda : Cautious on sub-contract prices
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