TA Securities

A Member of the TA Group

MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048

RESULTS UPDATE
Thursday, August 30, 2012 FBMKLCI: 1,645.58 Sector: Plantation

Sime Darby Berhad

Stronger By The Year
THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*

TP: RM11.62 (+18.6%)

Last Traded: RM9.80

BUY
TA Research Team Coverage +603-2072-1277 ext:1634 clfoo@ta.com.my www.taonline.com.my

Review FY12 core earnings came in within our expectations. 4Q12 net profit of RM1.0bn was 19.5% higher QoQ but 23.3% lower YoY. The QoQ growth was largely attributable to, 1) strong recovery in the plantation segment, boosted by 5.2% increase in average CPO selling price to RM3,056/tonne, higher FFB harvest (+11.6%) and turnaround in the downstream business, 2) higher contribution from the motor segment (PBIT: +56.8%) thanks to strong domestic sales, and 3) higher contribution from the property segment (PBIT: +25.7%) thanks to sales boost from the Life Style campaign and higher progress billing. The YoY contraction meanwhile was largely due to lower contribution from plantation segment (PBIT: -36.4%) and property (PBIT: -38.0%). FY12 reported net profit increased 13.3% YoY to RM4.2bn. Excluding non-core items, which mostly comprises of gain on disposals and forex, core net profit amounted to RM4.0bn, accounting for 103% of our estimate. Plantation segment's PBIT declined by 2.9% to RM3.2bn, attributable to marginally lower average CPO selling price (-0.7% YoY), 3.4% decrease in FFB harvest and higher production cost. The Property segment's revenue rose by 4.5% YoY to RM2.1bn thanks to higher progress billing, which managed to offset lower take-up rates in the high end residential sub-segment. The Industrial segment recorded 26.5% YoY increase in PBIT, partially boosted by consolidation of 6 months income from Bucyrus (PBIT: RM57.6mn) and higher demand for equipment in the Australasia region in the earlier quarters. The strong 4Q12 sales boosted motor's segment's FY12 earnings, thanks largely to solid demand in Malaysia. Declared 25 sen/share final single tier dividend, bringing FY12 total dividend to 35/sen, higher than our 32 sen/share estimate. The dividends translate into a payout ratio of 53%. Impact Changes in assumptions: 1) higher FFB growth from Indonesia, 2) lower production cost, 3) more conservative order book assumption from the industrial segment, and 4) higher effective tax rate of 26.5% (previously 22.9%). The net impact is approximately 2% upgrade in FY13 and FY14 earnings forecasts.

Share Information Bloomberg Code SIME MK Stock Code 4197 Listing Main Market Share Cap (mn) 6,009 Market Cap (RMmn) 58,893 Par Value 0.50 52-wk Hi/Lo (RM) 10.26/7.00 12-mth Avg Daily Vol ('000 shrs) 7,945 Estimated Free Float (%) 41.0 Beta 0.90 Major Shareholders (%) Skim Amanah Saham Bumiputera - 36.36 EPF - 12.61 PNB - 10.02 Forecast Revision Forecast Revision (%) Net profit (RMm) Consensus TA's / Consensus (%) Previous Rating Financial Indicators Net debt/equity (%) CFPS (sen) P/CFPS (x) ROA (%) NTA/Share (RM) Price/ NTA (x) 5-year EPS CAGR (%) Scorecard vs TA vs Consensus Share Performance (%) Price Change 1 mth 3 mth 6 mth 12 mth % of FY 103.1 Within 99.5 Within FY13 11.6 26.3 37.2 8.4 4.5 2.2 na FY14 8.7 3.7 264.2 8.4 4.9 2.0 na FY13 FY14 2.0 1.6 4,199 4,428 4,295 4,547 98 97 Buy (Maintained)

SIME (0.2) 2.1 1.1 11.5

FBM KLCI 1.3 5.1 4.8 13.7

(12-Mth) Share Price relative to the FBM KLCI

Source: Bloomberg

Page 1 of 3

TA Securities
A Member of the TA Group

30-Aug-12

Outlook On the industrial segment, management confirmed that there has been slowdown in order replenishment as the Australasia market outlook is softening. However, on the flip side, management opined that slowdown in equipment procurement would boost after sales services revenue as more maintenance will be needed for equipment that is already in the field. To maintain the performance of the division, the group also seeks to manage its inventory efficiently. The outlook of the property division should remain resilient given the groups strategy to dish out affordable homes which is priced below RM1mn. This is clear diversion as Sime has previously focused on high end residential projects. We view the shift in focus positively as the groups products would be more in tune with market demand. We also understand that approximately half of the groups earnings for FY13 will be coming from earlier sales. This provides some of from buffer to the divisions earnings. While automotive demands are facing stiff competition in China, this would be offset by the strong demand from Malaysia, Singapore and New Zealand with the upcoming launches. Valuation Target price adjusted slightly lower to RM11.62 (RM11.75 previously). The lower target price is primarily attributable to lower valuation for the industrial segment given our more cautious outlook on demand. Maintain Sime Darby as Buy. The stock remains one of our top picks in the Plantation sector. Key risk factors to our recommendation/earnings forecasts are, 1) CPO price exceeding/underperforming our expectations, 2) value accretive corporate exercise, 3) significant slowdown in Chinas economy, and 3) weaker RM. Figure 1: Segmental PBIT Breakdown
RMmn Plantation Property Industrial Motors Energy & Utilities Healthcare Others Corporate expenses 4Q11 1,270.1 246.0 368.7 191.8 26.2 6.9 (54.1) (41.1) 3Q12 562.6 121.3 358.1 153.4 64.0 4.3 15.5 (13.1) 4Q12 807.3 152.5 365.6 240.6 54.6 8.0 33.9 (153.8) 1,508.7 0.0 1,508.7 %QoQ 43.5 25.7 2.1 56.8 (14.7) 86.0 118.7 nm 19.2 nm 19.1 %YoY (36.4) (38.0) (0.8) 25.4 108.4 15.9 nm nm (25.1) nm (27.5) FY11 3,280.2 456.0 1,068.0 633.2 245.7 26.0 (42.0) (65.4) 5,601.7 67.1 5,668.8 FY12 3,203.2 467.2 1,351.4 702.1 335.4 26.1 68.8 (226.7) 5,927.5 (54.2) 5,873.3 %YoY (2.3) 2.5 26.5 10.9 36.5 0.4 (263.8) nm 5.8 nm 3.6

Continuing Operations 2,014.5 1,266.1 Discontinuing Operations 67.1 0.8 Total 2,081.6 1,266.9 Source: Bursa Announcement; TA Securities

Figure 2: Plantation Statistics 4Q11

FFB (tonnes) CPO (tonnes) Rubber (kg)

3Q12 4Q12 2,695,881 2,056,089 2,295,290 675,321 521,320 575,004 150,061 119,462 128,366

%QoQ 11.6 10.3 7.5

%YoY FY11 (14.9) 10,111,042 (14.9) 2,442,223 (14.5) 550,015

FY12 9,762,537 2,438,093 520,143

%YoY (3.4) (0.2) (5.4)

Source: Bursa Announcement; TA Securities

Page 2 of 3

TA Securities
A Member of the TA Group

30-Aug-12
Target PER (x) Segment value (RMmn) 17.0 44,295.2 10,029.1 12.0 2,992.0 10.0 9,157.9 10.0 4,275.3 466.4 485.9 981.3 (2,853.1) 69,830.0 6,009.5 11.62 Remarks Long term sector average 15% discount to RNAV Sector target PER Assumed target PER Sector average PER BV Market value

Figure 3: Sum-of-Parts valuation table

Segments Plantation Property Energy & Utilties Heavy equipment Motor vehicle Other core assets E&O Associate + JV Net debts (holding co.) Equity value Enlarged share capital (mn) SOP/share (RM)

Implied FY13 PER of 16.6x

Earnings Summary
YE June 30 (RMmn) Revenue EBITDA EBITDA margin (%) Pretax profit Net profit Core net profit EPS (sen) Core EPS (sen) Core EPS growth (%) PER (x) GDPS (sen) Div yield (%) Core ROE (%) 2010 32,506.2 3,245.2 10.0 1,760.2 726.8 685.2 12.1 11.4 (70.5) 86.0 10.0 1.0 3.3 2011 41,858.8 6,496.3 15.5 5,450.6 3,664.5 3,573.1 61.0 59.5 421.5 16.5 30.0 3.1 16.1 2012E 47,602.3 7,130.1 15.0 5,654.6 4,150.2 3,988.4 69.1 66.4 11.6 14.8 34.0 3.5 15.9 2013F 48,611.6 7,374.2 15.2 5,906.9 4,198.8 4,198.8 69.9 69.9 5.3 14.0 34.0 3.5 15.5 2014F 48,453.7 7,800.5 16.1 6,228.8 4,427.8 4,427.8 73.7 73.7 5.5 13.3 36.0 3.7 15.2

(%)

(sen) (sen) (%) (x) (sen) (%) (%)

4Q12 Results Analysis

YE June 30 (RMmn)
Turnover EBIT Net Int Inc/ (exp) Associates + JV Forex + EI Pretax Taxation MI Discontinued op. Reported net profit Core net profit Core EPS (sen) GDPS (sen) EBIT Margin Pretax Margin Tax Rate (sen) (sen) (%) (%) (%)

4Q11
13,059.0 2,072.3 (18.2) 37.9 (47.4) 2,044.6 (643.1) (67.4) (21.5) 1,312.6 1,360.0 22.6 22.0 15.9 15.7 31.5

3Q12
11,027.3 1,222.3 (74.2) 40.9 2.9 1,191.9 (260.8) (52.4) (2.7) 876.0 873.1 14.5 0.0 11.1 10.8 21.9

4Q12
14,122.1 1,405.7 (69.0) 47.3 55.7 1,439.7 (276.9) (63.7) 0.0 1,099.1 1,043.4 17.4 25.0 10.0 10.2 19.2

QOQ%
28.1 15.0 (7.0) 15.6 nm 20.8 nm nm nm 25.5 19.5 19.5

YoY%
8.1 (32.2) 279.1 24.8 nm (29.6) nm nm nm (16.3) (23.3) (23.3)

FY11
41,858.8 5,391.9 (152.5) 118.4 91.4 5,449.2 (1,602.7) (183.4) 1.4 3,664.5 3,573.1 59.5 30.0 12.9 13.0 29.4

FY12
47,602.3 5,651.1 (206.7) 114.6 161.8 5,720.8 (1,308.2) (196.2) (66.2) 4,150.2 3,988.4 66.4 35.0 11.9 12.0 22.9

YOY%
13.7 4.8 35.5 (3.2) nm 5.0 nm nm nm 13.3 11.6 11.6

Disclaimer
The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein.
for TA SECURITIES HOLDINGS BERHAD(14948-M) (A Participating Organisation of Bursa Malaysia Securities Berhad)

Kaladher Govindan Head of Research

Page 3 of 3