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Sime Darby Bhd
(Oct 1, RM9.18)
Maintain “buy” with target price of RM11.20.
Sime Darby has aborted its plan to acquire a 49% stake in New Britain Palm Oil Ltd (NBPOL) from Kulim (M) Bhd after holding exclusive talks with the latter.

In a statement, Sime Darby said it had decided at this time not to proceed further in relation to the proposal following the expiry of the exclusivity period but no details were given.

We believe the stumbling blocks could have to do with pricing and questions over Sime Darby’s ability to exert control over NBPOL, which is now largely independently managed apart from Kulim.

We are “neutral” over this latest development. At the current price of £4.175 (RM22) per share, NBPOL is trading at a price-to-earnings ratio (PER) of 16 times the consensus financial year 2014 (FY14) earnings per share (EPS) of £0.26 per share.

At a premium of between 30% and 50% over the current price of £5.40 to £6.30 per share, NBPOL would be valued at 21 times and 24 times its FY14 EPS — which is on the steep side.

This would have translated into a purchase price of between RM4.3 billion and RM5 billion for Sime Darby to assume full control of NBPOL.

There was speculation that the transaction may not have obtained the nod from other stakeholders if the price was below £6 per share.

Sime Darby’s plantation growth prospects still rest significantly on its Liberian operations, which have come to a halt due to the Ebola outbreak.

Nonetheless, we believe the long-term prospects remain intact, and the stock will benefit from any upticks in crude palm oil prices. Other catalysts include the potential listing of its auto division.

We maintain “buy” on Sime Darby, with a fair value of RM11.20 per share, a 10% discount to our sum-of-parts value of RM12.45 per share. — AmResearch, Oct 1
 

 



This article first appeared in The Edge Financial Daily, on October 2, 2014.

 

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