KUALA LUMPUR: SIME DARBY BHD [] shares rose on Tuesday, April 26 after its unit Sime Darby Engineering Sdn Bhd was awarded a RM1.15 billion contract to fabricate KBB Topsides for the Kebabangan Northern Hub Development Project by Kebabangan Petroleum Operating Company Sdn Bhd.
At 11.05am, Sime Darby was up five sen to RM9.05 with 3.82 million shares done.
Sime Darby said on April the contract would be undertaken over a period of 29 months effective from April 22, 2011.
RHB Research in a note April 26 said that although it was positive on this award, it was not a surprise as the research house had expected Sime to get a large contract soon.
With the almost completed first ONGC project, Sime's O&G division has proven that it is able to handle the contract on time and on budget, which has given confidence to Petronas, it said.
'However, we do not expect this new contract to substantially alleviate the losses being incurred at the O&G division of an estimated RM40 million-RM50 million per year, given that this contract is likely to garner operating margins of 10-12%, which is to be spread over 29 months,' it said.
RHB Research said that overall impact of this contract to Sime's net profit was likely to be less than 1% for FY11 and 1-2% p.a. for FY12-13, assuming the profit is spread out evenly.
'With this award, we uphold our view that there is a greater chance of Sime being able to dispose its O&G division at a more reasonable price, given the vote of confidence from Petronas.
'We believe Sime would still look to sell off this division in order to unlock value for the group, as even with this contract, its fabrication yards are still likely to be running at low utilisation rates of 50-60% (from 40% currently),' it said.
RHB Research left its forecasts unchanged and maintained its Outperform call on Sime Darby with RM10.70 SOP-based fair value.
At 11.05am, Sime Darby was up five sen to RM9.05 with 3.82 million shares done.
Sime Darby said on April the contract would be undertaken over a period of 29 months effective from April 22, 2011.
RHB Research in a note April 26 said that although it was positive on this award, it was not a surprise as the research house had expected Sime to get a large contract soon.
With the almost completed first ONGC project, Sime's O&G division has proven that it is able to handle the contract on time and on budget, which has given confidence to Petronas, it said.
'However, we do not expect this new contract to substantially alleviate the losses being incurred at the O&G division of an estimated RM40 million-RM50 million per year, given that this contract is likely to garner operating margins of 10-12%, which is to be spread over 29 months,' it said.
RHB Research said that overall impact of this contract to Sime's net profit was likely to be less than 1% for FY11 and 1-2% p.a. for FY12-13, assuming the profit is spread out evenly.
'With this award, we uphold our view that there is a greater chance of Sime being able to dispose its O&G division at a more reasonable price, given the vote of confidence from Petronas.
'We believe Sime would still look to sell off this division in order to unlock value for the group, as even with this contract, its fabrication yards are still likely to be running at low utilisation rates of 50-60% (from 40% currently),' it said.
RHB Research left its forecasts unchanged and maintained its Outperform call on Sime Darby with RM10.70 SOP-based fair value.
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