KUCHING: Contribution from Ramunia Holdings Bhd (Ramunia) will not be significant to Sime Darby Bhd’s (Sime Darby) earnings even assuming full utilisation of the Ramunia yard.According to OSK Research Sdn Bhd (OSK Research), the plantation segment is still the dominant contributor to Sime Darby’s earnings, making up 67 per cent of the first half for this year’s financial year earnings before interest and tax (EBIT).
The research house stated that it expected minimal contribution from Ramunia’s yard in the immediate term. It pointed out that Ramunia’s fabrication capacity was estimated at RM85,000 tonnes per annum (pa) with the assumption that its fabrication revenue was able to generate about RM15,000 per tonne, the total revenue contribution expected from this yard at full operational capacity would be about RM1.3 billion.
Also, if it assumed an operating margin of 15 per cent, this would contribute to about RM200 million pa. Having said that, its estimation was only super-ficial as some higher margin oil and gas (O&G) products could generate operating margins of 20 per cent to 30 per cent.
Meanwhile, OSK Research said that about 30 per cent utilisation rate for next year was seen. Its above assumption of revenue and operating profit contributions of RM1.3 billion and RM200 million respectively were on the basis of 100 per cent utilisation. However, it only expected this yard to achieve utilisation of about 30 per cent next year. Its assumption was on the basis that Kencana Petroleum Bhd’s (Kencana) yard was currently about 50 per cent utilised and assuming that Petronas and its production sharing contracts (PSC) contractors dished out new fabrication contracts in the second half of this year.
The research house believed that Kencana and MMHE Sdn Bhd (MMHE) would be the main beneficiaries given their delivery track record while the balance of jobs would flow down to other yards. It also believed that this yard would incur some start-up costs and go through a learning curve given its kick-start by a new management team.
OSK Research stated that if it factored in a crude palm oil (CPO) price of RM2,600 per tonne for this year and next year, Sime Darby’s earnings would be bumped up to RM3 billion for this year and RM3.4 billion for next year, which was slightly higher than consensus earnings. Hence, it believed that consensus was factoring in palm oil price of just under RM2,600 for Sime Darby. The research house said that at a palm oil price of RM2,600, Sime Darby’s earnings per share (EPS) would be 52 sen for this year which translated into a price earnings (PE) of 16.8 times earnings. It outlined that at its target PE of 15 times, Sime Darby would be worth RM7.80 that was still below the current share price of RM8.75.
OSK Research stated that on the other hand, if Sime Darby’s PE could stretch to 20 times, it would be worth RM10.40. Hence, for investors to turn in a profit buying Sime Darby at current levels, its PE needs to hit 20 times again with CPO at RM2,600.