Sime Darby Set for 12-Month Low on Profit Target Cut

Dec. 1 (Bloomberg) -- Sime Darby Bhd., the Malaysian palm oil producer, car seller and homebuilder, headed for a 12-month low in Kuala Lumpur trading after slashing its full-year profit target to account for the economic slowdown.

The stock lost 7.7 percent to 5.4 ringgit at 10:21 a.m. local time. The new earnings goal is 34 percent lower than the average analyst forecast compiled by Bloomberg. Goldman Sachs Group Inc. cut its price target on Sime Darby stock.

The Kuala Lumpur-based company almost halved its net income target on Nov. 28 to 1.9 billion ringgit ($524 million) in the year ending June 2009. Palm oil, the biggest contributor to Sime Darby’s profit, has tumbled and the global recession has weakened demand for the group’s houses and vehicles.

“Sime may face earnings and recommendation downgrades in the short term,” Ong Chee Ting, an analyst at Aseambankers Malaysia Bhd., wrote today in a report, repeating his “fully valued” rating. The new profit target implies “fairly weak contributions” from units other than palm oil, he said.

Last fiscal year, Sime Darby reported net income of 3.51 billion ringgit, almost double the new target, after the price of palm oil soared to a record. As well as being the world’s largest producer of the edible oil, Sime Darby sells luxury cars in Hong Kong, motorcycles in China and homes across Malaysia.

Palm oil has fallen 53 percent in the past six months as the worldwide slowdown cuts demand for commodities such as crude oil. Sime Darby Chief Executive Officer Ahmad Zubir Murshid said on Nov. 28 that the current financial year will be “very challenging.”

Goldman Sachs today cut its target price 8.9 percent to 3.6 ringgit.