KUALA LUMPUR: CIMB Equities Research has downgraded Sime Darby from Trading Buy to NEUTRAL on news that more than RM1 billion in cost overruns for Bakun comes as a negative surprise to its.
The research house said on Thursday, May 6 the cost overruns could lop 8% off its FY6/10 earnings and dent investors’ confidence and sentiment towards Sime.
“Management has not denied the news of a potential cost overrun at Bakun. Sime's 1.3% share price loss yesterday (Wednesday) wiped RM781 millio from its market cap which is more than the likely losses,” it said.
CIMB Research said more importantly, this issue raises questions about transparency, execution and earnings momentum and leads it to believe there are insufficient catalysts for the stock to outperform in the short term.
“To account for the risk of write-downs and dented confidence in Sime Darby, we now apply a 10% discount to our SOP value, which reduces our target price from RM10.82 to RM9.70. Although the stock’s P/E valuation may be more attractive than its peers, it is offset by earnings downside risks from potential losses from Bakun project.
“We recommend investors to switch to Wilmar in Singapore or Genting PLANTATION [] in Malaysia for exposure to the plantation sector,” it said.
About Me
- Nuang
- Ibrahim bin Ramli@Nuang started his career with CIMB Wealth Advisors Berhad as Agency Manager in April, 2008.Previously he was an Internal Auditors and Accounts Executive with Perodua Sales Sdn Bhd since 17 August, 1994. His background:- 1.Certified of Achievement for Master Sales Leadership from Dr Lawrence Walter Ng of President of The Art Of Learning and International Of Learning Without Learning 2.Certified for eXtra Ordinary Performance of Lawrence Walter Award Certificate for One Million Ringgit Club 2007 3. Certified Life & General insurances 4. Conferred with Diploma in Business Studiess & Bachelor of Business Admin(Hons)Finance from UiTM, Terengganu Branch & Shah Alam respectively;
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