#Flash* Sime Darby buys part of Caterpillar distribution biz for RM1.1b cash

KUALA LUMPUR: SIME DARBY BHD []'s industrial division buys Caterpillar Inc's former Bucyrus distribution business involving mining machinery, in Australia, Papua New Guinea and New Caledonia for US$360 million (RM1.1 billion) cash.

Sime Darby said on Wednesday the acquisition would enable its industrial division to strengthen its position in the mining industry by offering a wider range of mining equipment and services to its customers.

'The acquisition will also allow Sime Darby's industrial division to leverage its position in Australasia's rapidly growing mining industry (Queensland, Northern Territory and Papua New Guinea),' it said.

Sime Darby said the Bucyrus distribution assets were mainly in Queensland, Australia and comprises of owned and leased PROPERTIES [], plant and equipment, inventories, maintenance contracts, order book.

In a separate statement, Caterpillar said this deal marked the first of several that are expected to transition the product distribution and support of former Bucyrus machinery to Cat dealers that support mining customers around the world.

'While not part of the transaction, Caterpillar also intends to start selling former Bucyrus mining products through Sime Darby's other Cat dealerships,' said Caterpillar.

Hastings Deering, the principal Australian subsidiary of Sime Darby Industrial, has a significant field population of former Bucyrus machines in its territories.

Meanwhile Sime Darby executive vice president who heads Sime Darby Industrial, Scott Cameron said: 'We are very excited to be the first Cat dealership to take on the former Bucyrus distribution business.'

He added the addition of the former Bucyrus product line would enable Sime Darby Industrial to expand its presence in the region and offer mining customers an unparalleled range of products and services.

#Flash* Sime Darby 1Q net profit jumps 63.9% to RM1.07b

KUALA LUMPUR (Nov 25): SIME DARBY BHD [] net profit for the first quarter ended Sept 30, 2011 jumped 63.9% to RM1.07 billion from RM654.74 million a year earlier, boosted by stronger results of the PLANTATION [] and industrial divisions.

The company said on Friday that its revenue for the quarter rose 27.5% to RM11.06 billion from RM8.67 billion in 2010.

Earnings per share for the quarter rose to 17.87 sen from 10.89 sen a year earlier, while net assets per share was RM4.17.

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Sime Darby comes off year-low

KUALA LUMPUR: SIME DARBY BHD [] shares recovered on Tuesday, Sept 20 and came off its 13-month low after MIDF Research said the price retracement had created a buying opportunity.

At 10.55am, Sime Darby added 12 sen to RM7.82 with 2.39 million shares traded.

MIDF Research in a note Sept 20 said the price retracement was a result of negative market movement rather than deteriorating fundamentals.

'Based on our target price of RM10.55 and dividend yield of 3.9%, we are expecting a total return of 40.91%, which exceeded our Buy recommendation threshold of 15%.

'We continue to like Sime Darby and maintain our Buy recommendation at unchanged target price of RM10.55, derived from sum-of-parts valuation,' it said.

Sime Darby Industrial's RM3b order book

PETALING JAYA:'' With an order book of RM3 billion, Sime Darby Industrial Sdn Bhd is expected to remain busy for the next three years, says executive vice-president Scott William Cameron.

Besides Malaysia and Brunei, Sime Darby Industrial has a presence in Australia, China, Papua New Guinea, Singapore, Hong Kong and Macau.

The company is mostly involved in distributing Caterpillar heavy machinery for the mining, CONSTRUCTION [], forestry, power systems, marine and quarry
sectors of these countries.

Speaking at a press conference at the Tractors Engineering Complex in Puchong on Monday, Sept 19, Scott was confident the division would contribute positively to the group's bottomline in the coming years.

In the financial year ended June 30, 2011, the division registered operating profit of RM1.1 billion, on the back of RM10.3 billion in revenue, accounting
for 18 per cent of Sime Darby Group's bottom line.

Looking ahead, Scott said the Australian and China markets were robust and presented further growth potential for Caterpillar, especially in the mining
industry.

"We aim to ride on the mining boom with Queensland's coal industry set to double and with the enormous potential in Xinjiang, China," he added.

In view of this, Scott said the division would allocate some RM47 million, annually, to train between 400 and 600 skilled personnel for the next decade.

He added that Sime Darby Industrial had also set up caterpillar certified campuses throughout the region offering courses on heavy equipment maintenance, repair and service.

Touching on Caterpillar's acquisition of Bucyrus International Incorporated, Scott said it would extend the range of products to cover both surface and
underground mining equipment which would greatly benefit the mining industry.

"With the addition of Bucyrus products, Caterpillar's addressable market will grow to 75 per cent from 23 per cent at present," he said.

These products include walking draglines, electric rope shovel, rotary blast hole drill and continuous miner, he added.

Caterpillar dealership operations account for over 90 per cent of the division's profits.

The partnership between Caterpillar and Sime Darby is a long-standing relationship that goes back to 1929.

Today, Sime Darby Industrial is among Caterpillar's top five dealership in the world.

Meanwhile, Sime Darby Industrial's Managing Director K.C. Chong said'' locally, the division expected to receive orders for machinery beginning the
second quarter of next year.

"It (orders) will be from mass construction work to build the My Rapid Transit (MRT) project," he said, but declined to reveal any numbers. - Bernama

Underweight on plantations

KUALA LUMPUR: UOB Kay Hian Malaysia Research is maintaining is Underweight stance on the PLANTATION [] sector and keeping its net profit forecasts and 2011-2012 crude palm oil (CPO) average selling price (ASP) assumptions of RM2,900 a tonne (US$980) and RM2,700 (US$900) respectively.

It said on Friday, Sept 2 that the sector catalyst would be an ufavourable weather which would impact the production of oil crops and palm oil.

However, the risks included a potential new plantation export tax structure in Indonesia that would negatively affect the margin for Malaysia-based refineries while a slowdown in global economy might affect demand for CPO products. Another factor would the weather's impact on global oilseed production.

In its comments on the plantations sector, it said the April to June 2011 quarterly results were mostly in line with expectations, with the exception of Sime Darby.

UOB Kay Hian Research said Sime Darby posted stronger-than-expected results on the back of strong performance from its motor and industrial divisions, and this was coupled with improved margins from its plantation division on better cost control.

'Overall, 2Q11 results posted strong year-on-year growth due to strong fresh fruit bunches (FFB) production and high CPO selling price, with the exception of IOI Corporation which posted lower earnings year-on-year on the back of weaker contribution from its resource-based manufacturing segment (-54.1% on-quarter, -37.6% on-year) that was suffering from lower sales and lower margins.

However, the downstream business posted negative on-quarter growth for all companies

The research house, in maintaining its Underweight recommendation on the sector, said it was'' less bearish on CPO price but the decreasing CPO price trend might stretch into 1Q12 on the back of high inventory level as demand is unable to catch up with the strong supply.

UOB Kay Hian Research said its top sell was IJM Plantations (Target: RM2.30) given its high valuation. Its only Buy for this sector in Malaysia was Sime Darby (Target: RM10.40) for its turnaround in operations leading to stable earnings growth. A potential catalyst could come from potential enhancement M&A domestically and globally.

To recap, it said all plantation companies recorded stronger fresh fruit bunches (FFB) production in 2Q11 due to strong yield recovery in Malaysia and high ASP. Strong yield recovery in Malaysia especially in Sabah and Sarawak has enhanced production in Sabah estates.

However, it raised concerns about the lower margin and lower sales for the downstream segments.

Companies such as IOI Crop, Kuala Lumpur Kepong and Sime Darby recorded weaker on-quarter profit for their downstream business.

This might due to: a) limited ability to pass down earlier high raw material costs that resulted from the sharp correction in CPO price in the last two weeks of June 2011, and b) thin or negative refining margins due to the sharp fall in RBD palm stearin price.

In its assessments of Sime Darby and IJM Plantations were the top performers in 2Q11. IJM Plantation benefitted from the strong yield recovery in Sabah and its active forward selling policy which enabled it to lock in higher prices.

Sime Darby's performance was boosted by the better-than-expected growth in its plantation (+88.4% on-quarter , +221.8% on-year), industrial (+52.4% on-quarter, +69.9% on-year) and motor (+16.9% on-quarter +31.4% on-year) divisions.

UOB Kay Hian Research said IOI Corporation was the weakest performer. It recorded a negative on-quarter growth of 16.6% and flat on-year net profit growth in 2Q11. This was mainly due to the lower contribution from its downstream business which were affected by the lower sales and margins across all segments.

Meanwhile, it upgraded Sime Darby from a Hold to Buy with a higher target price of RM10.40 from RM9.75 based on sum-of-the-parts (SOTP).

'We have raised our earnings forecasts for FY12 and FY13 by 6.5% and 9.3% respectively to factor in the stronger-than-expected performance for its industrial and motor divisions,' it said.

As for IJM Plantations, it cut the target price to RM2.30 to factor in the higher interest expense. This is caused by its debt funding for the new planting investment of RM600 million in Indonesia over the next four years, which offsets its upward revision of FFB production growth to 6%-7% on-year from 5%.

On the outlook for CPO, it said the CPO prices were expected to be stable in 3Q11 due to the slowdown in production as a result of less harvesting days during the Hari Raya festive holidays and biological effect after the strong production in 2Q11. Also, demand for palm oil products from China and energy producers in Europe would remain strong in 3Q11 before entering the cooler weather season in 4Q11.

However, it said a delay in the next peak production season to 4Q11 which also coincides with the low demand season could result in a further decline in CPO prices as they react negatively to rising inventory level.

On the weather, it raised concerns that excessive rainfall in 1H11 might affect the pollination in 2H11. For instance, Sabah received higher-than-average rainfall from January to April.

While sufficient rainfall was important for palm oil productivity, excessive rainfall could also affect the pollination and fruits, and hence affect the FFB production in Sabah estates, it said.

#Flash* Sime may be buying 30% stake in E&O

KUALA LUMPUR: Conglomerate SIME DARBY BHD [], which is bolstering its property development division, may acquire a 30% stake in developer Eastern & Oriental Bhd (E&O), two sources familiar with the deal said.

The stake include that held by Singapore-listed G K Goh Ltd, whose shares has been suspended pending an announcement on the deal which is expected as soon as this evening.

The shares of E&O were suspended before trading started today.

In a filing to Bursa, the company said the suspension request was pending an announcement.

HDBSVR: KLCI to extend technical rebound

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) said riding on a positive external backdrop, it reckons the Malaysian bourse ' in a recovery phase from an oversold position ' would extend its technical rebound on Tuesday, Aug 16.

'On the chart, the benchmark FBM KLCI could pull away from 1,495 to climb towards the next resistance hurdle of 1,530,' it said.

Wall Street was up for the third day in a row on Monday night. Major U.S. equity bellwethers rose between 1.9% and 2.2% at the closing bell, spurred by corporate takeover news and bargain hunting activity.

'Likewise, investors back home will be on the lookout for trading opportunities ahead. Counters that may come under focus today include beaten down stocks such as CIMB, UEM Land, Sime Darby and Malaysia Marine and Heavy Engineering,' said HDBSVR.

Credit Suisse maintains Underweight on plantations

KUALA LUMPUR: Credit Suisse Research maintains its Underweight stance on PLANTATION []s due to the rich valuations and also its bearish outlook for palm oil prices in the short term.

At 3.51pm on Tuesday, June 21, Kuala Lumpur Kepong share price was down 18 sen to RM21.92, Sime Darby was unchanged at RM9.19 and IOI Corp inched up two sen to RM5.30.

'Our key Underperform calls are on IOI Corp (target price RM5) and Sime Darby (TP RM8),' it said on Monday, June 20. As for KLK, it was Neutral on the stock and had a TP of RM21.70.

The research house said corn prices have fallen 10% over the past week and it believed this had dragged palm oil prices. The palm oil futures are now closer to RM3,200/tonne (19% below the peak of RM3,930 in mid-February 2011).

'Historical trends suggest that corn, soyabean and palm oil prices are highly correlated. Corn and palm oil prices have a correlation factor of 79%, 77% and 78% over a one-, three- and five-year period, respectively. If corn prices continue to fall, palm oil prices would also weaken,' it said.

Recently, the US Senate's vote ended three decades of ethanol subsidies.

Effective from July 1, ethanol tax credits of 45 cents per gallon have been removed.

Credit Suisse Research said the mandated level of ethanol is 12.6 bn gallons in 2011. However, given the current incentive for refiners to blend ethanol, current ethanol demand and production is expected to be 13.8 billion gallons, or 1.2 billion above the mandatory blend.

If the tax credit is scrapped, this would reduce margins for refiners and reduce, although not remove, the incentive for blending more ethanol. Weak crude oil price has also not helped, it said.