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Friday, October 7, 2016

Brokers Report: SIME DARBY - Land Deals with Sister Co

Maintain Neutral call with target price (TP) of RM7.15

Sime Darby has proposed an asset disposal and acquisition with I&P Group S/B after finalizing the recent private placement at RM7.45/share, raising RM2.3bn. The first proposal is a disposal of 325.7ha freehold oil palm plantation land in Semenyih for RM428m followed by an acquisition of 768ha freehold oil palm plantation land in Kluang and Batu Pahat as well as a 70mt/hour mill for a combined amount of RM106m. We see good opportunities in unlocking the potential value in both deals, which is a collective effort from the company and its major shareholder. We maintain our Neutral call and TP of RM7.15.

Salient details of the transactions. Firstly, Sime Darby plans to divest 325ha (805 acres) in Semenyih to Petaling Garden for RM428m or RM12.20 psf. The acquirer is a wholly-owned subsidiary of I&P Group S/B, which in turn is a 54.99%-owned subsidiary of Permodalan Nasional Malaysia. Sime Darby is expected to reap a gain of RM295.7m (EPS of 4.7sen) on the disposal. On the second deal, the Group plans to acquire 768.5ha brownfield plantation land together with a 70mt/hour palm oil mill and other ancillary buildings in Kluang and Batu Pahat from Yong Peng Realty S/B and Perusahaan Minyak Sawit Bintang S/B for a total of RM106m or RM131,677ha. Both sellers are the indirect wholly-owned subsidiaries of I&P Group S/B.

Utilisation of proceeds. The proceeds derived from the proposed disposal will be used to fund property arm development projects over the next 2 years while the acquisition will be funded through internally generated funds. Both deals are expected to be completed by 1QFY18 and are not subject to the Sime Darby’s shareholder approvals.

Synergistic gains for both parties. Both deals involve its major shareholder, PNB, which owns 54.99% stake in I&P Group S/B and the parent company of AmanahRaya Trustee Berhad- Amanah Saham Bumiputera. The proposed acquisition of plantation land in Johor is located in close proximity to Sime Darby’s existing oil palm plantations in Johor Central, which should help generate higher productivity as well as cost savings to the Group. On the other hand, given the vibrant property development activities in Semenyih dominated by Eco World, SP Setia, Hua Yang, MKH and a few reputable property players, it will help unlock the potential value of its agriculture land in Semenyih, which can be converted into property land.

Source: PublicInvest Research - 07 Oct 2016

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