Sime Darby started at Buy by Nomura on earnings growth upcycle

Malaysia ringgit notesMalaysia ringgit notes

Nomura started Sime Darby at Buy with a 3.45 ringgit target price, pointing to solid earnings prospects.

“We like SD on its earnings upcycle prospects (2018F-2020F CAGR of 24 percent), driven by both autos (offensive product launch cycle) and industrials (cyclical recovery of mining investments and China’s Belt and Road Initiatives),” Nomura said in a note on Wednesday.

“We think the market has yet to factor in earnings prospects of its logistics and hospital businesses as well as the potential monetisation of its Malaysian Vision Valley landbank, which is strategically located at one of the High Speed Rail stations,” it said.

“Furthermore, post demerger, we expect Sime Darby to have a sharper focus on cost optimisation and accountability,” it said.

Nomura added that prior to the demerger, Sime Darby’s entities were “overshadowed by its bigger siblings,” Sime Darby Plantations and Sime Darby Property.

“This led to less scrutiny in each of the individual division’s underlying financial performance. Post demerger exercise in December 2017, there is more pressure on management to deliver on earnings growth,” Nomura said, noting margin expansion was becoming more evident.

The stock ended Wednesday up 0.36 percent at 2.79 ringgit.