IN report released earlier this month, Hong Leong Investment Bank (HLIB) pegged a sum-of-parts valuation of RM9 per Sime Darby Bhd share, which is a 9.22% premium to its close of RM8.24 last Thursday.

After a 10% holding company discount, and taking into account recent private placement proceeds that were utilised to pare down debts, HLIB has a RM59.79 billion valuation on Sime Darby.

HLIB opines that Sime Darby’s valuations could be higher once its wholly owned subsidiaries, Hasting Deering (Australia) Ltd and Austchrome Pty Ltd, dispose of 20 industrial properties in Australia’s Queensland and the Northern Territory to Singapore’s Saizen Real Estate Investment Trusts for A$355.8 million, or RM1.12 billion. The deal is likely to generate strong recurring income streams for Sime Darby once it is concluded.

Nevertheless, most of Sime Darby’s valuation, some 60%, comes from its plantation division, which HLIB values at RM35.51 billion. The division is involved in the cultivation of oil palm, rubber and sugarcane, plantation management, downstream activities, cattle rearing, agribusiness and food, among others.

The division’s total land bank of one million hectares is spread across Malaysia, Indonesia, Liberia, Papua New Guinea and Solomon Islands. Some 600,000ha are planted with oil palm, 11,000ha with rubber and 5,000ha with sugar cane while 9,000ha are grazing pastures.

According to its website, Sime Darby produces about 2.4 million tonnes or 4% of the world’s annual crude palm oil (CPO) output.

Sime Darby’s plantation division contributed 34% of profits and 27% of revenue in the financial year ended June 30, 2016 (FY2016). It raked in RM2.4 billion in net earnings and RM44 billion in sales.

Based on its revised net asset value (RNAV), Sime Darby’s property arm is valued at RM19.37 billion, which makes it one of the largest developers in the country. In terms of land bank, the division has earmarked about 5,000ha for future development.

Apart from Malaysia, the property arm’s key markets include Australia, Singapore, Vietnam and the UK, where it is involved in property development, property investment and asset management.

In FY2016, Sime Darby Properties contributed RM2.86 billion, or 7%, to the group’s revenue, and RM1.06 billion, or 35%, to net earnings. Nevertheless, this marked a decline for the segment from a year earlier due to the challenging local housing market. Gross sales value was lower at RM1.74 billion, from RM2.1 billion in the previous year, despite selling higher number of units. Unbilled sales were RM1.3 billion as at June 30, 2016.

The other three divisions, namely industrial, motor and logistics, make up a small portion of the group’s valuation.

HLIB values Sime Darby’s industrial division at RM4.57 billion, based on the 15 times price earnings ratio of its forecast FY2017 net profits. The group is one of the largest Caterpillar dealers in the world, servicing 10 countries within the Asia-Pacific.

This division contributed RM9.67 billion, about 22%, to the group’s revenue and RM326.3 million, or 11%, to net earnings.

Meanwhile, the motor arm is worth RM4.3 billion, according to HLIB. Sime Darby’s motor division imports, assembles, distributes and retails luxury automotive brands such as BMW, Jaguar, Land Rover and Porsche, as well as mass market brands such as Ford and Hyundai.

In FY2016, the division saw marginal increases in revenue and profits of 1.5% and 6.1% respectively. It contributed RM18.95 billion, or 43%, to the group’s revenue, while pre-tax earnings contributed RM502.5 million.

At 12 times PER on the forecast profit of FY2017, the logistics division is valued at RM1.24 billion, the smallest of the lot. The division is the primary operator of Weifang Port in China’s Shandong province. Operations at the port include dry bulk, break bulk, liquid bulk, general cargo and container-handling services. The division contributed 1% to revenue and 3% to net earnings in FY2016.

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