This article first appeared in The Edge Financial Daily on December 5, 2017

KUALA LUMPUR: Shares in Sime Darby Bhd continued their climb yesterday as investors appeared to favour the diversified group over its newly listed ‘siblings’, Sime Darby Property Bhd (Sime Property) and Sime Darby Plantation Bhd (Sime Plantation).

Sime Darby’s share price gained 12 sen or 5.5% to RM2.30 yesterday. It was the most actively traded stock with 46.87 million shares traded. But Sime Plantation dropped 16 sen or 3.2% to RM4.85, while Sime Property lost eight sen or 6.7% to RM1.12.

Over the past two trading days, Sime Darby’s price has surged 24.3% against its listing reference price of RM1.85. Sime Plantation has declined 13.2%, compared with its issue price of RM5.59, while Sime Property has fallen 25.3% from RM1.50.

Ivy Ng, head of equity research of CIMB Research, said buying interest in Sime Darby may be driven by the market’s belief that the stock is currently trading below its warranted price-earnings ratio.

Based on a report by TA Securities that targets core earnings per share of 12 sen for Sime Darby in financial year 2018, the shares are now trading at 19.16 times forecast earnings based on yesterday’s closing.

Furthermore, the buying interest in Sime Darby could also be due to the dividend of 17 sen per share (yesterday was the ex-date for the group’s dividend).

“It could take a while for the market to settle,” Ng said of the three counters, adding that recent trades were more likely based on price-earnings valuations or index compositions rather than fundamentals.

On that note, Sime Plantation may be seeing a selldown as it trades at higher valuations.

“Plantations has been a laggard sector so far this year, falling behind the FBM KLCI and other indices,” said Pong Teng Siew, head of research of Inter Pacific Securities Sdn Bhd, adding that a selldown in Sime Plantation is therefore unsurprising.

Bloomberg data show that the Bursa Malaysia Plantation Index has gained only 0.94% year to date, compared with a 4.74% rise in the FBM KLCI and 7.91% rise in the FBM EMAS Index.

As such, Pong said, it is unsurprising that Sime Plantation has seen weaker interest.

On the other hand, the removal of Sime Property from the list of FBM KLCI component stocks could be a factor for its selldown, as fund managers adjust their portfolios to better reflect the index’s composition, Ng said.