Thursday 28 Mar 2024
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KUALA LUMPUR: RHB Research is maintaining its Market Perform on Sime Darby with a fair value of RM6.40 pending further details from its proposed acquisition of Ramunia Holdings for RM232 million and the minimal impact on its earnings.

The research house said on May 5 that there were also trading opportunities as based on the current crude palm oil (CPO) price of RM2,700 per tonne, Sine Darby could trade up to RM8.05 a share.

Sime Darby’s unit Sime Darby Engineering (SDE), has offered to acquire the business and undertaking (including the assets and liabilities) of Ramunia for purchase consideration of RM232 million.

The acquisition would be satisfied with RM46.2 million in cash and  RM185.8 million of new shares in SDE, representing 20% of the enlarged SDE. The offer is open for acceptance until May 8.

RHB Research if this acquisition goes through, it would be a good deal for Sime.

“This offer is substantially below the offer MISC made for Ramunia back in January 2008 of RM3.2 billion. We believe the acquisition price is relatively inexpensive,” it said.

It said Sime would be paying about 41 sen per share for Ramunia, which was a 35% discount to Ramunia’s last traded price of 63 sen.

The acquisition based on price/net tangible asset per share (P/NTA) works out to be about 1.1 times (at a discount to Ramunia’s current P/NTA of 1.7 times and the research house’s oil and gas sector average P/NTA of 1.6 times FY09).

“However, if we assume the consensus FY10 pretax loss of RM91.3 million is correct, this could wipe out some 35% to 45% of our estimated earnings for Sime’s energy & utilities division in FY06/10, which would bring overall earnings for Sime down by 3.3%,” it said.

RHB Research said in 1QFY09, Ramunia’s losses were actually due mainly from finance costs to service its high net debt of RM322.2 million (net gearing of 216.6%) and that operationally, it is still in the black, albeit marginally (RM1.2 million in 1QFY10 or operating margin of 1.3%).

RHB Research said Sime would be able to improve Ramunia’s operations once it takes over the management, to at least close to its own margins of 5%to 7%, given that adding Ramunia’s 170-acre fabrication yard to Sime’s portfolio of assets.

The acquisition would not only more than double Sime fabrication capacities, but also bring about good synergies, via improved economies of scale. Sime would have no problem funding the acquisition given its currently low net gearing level of 12.3% as at 1HFY06/09.

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