Sime Darby Bhd
(Oct 24, RM9.48)
Maintain “buy” with unchanged fair value of RM10.58: Sime Darby has dispatched its offer document to the shareholders of New Britain Palm Oil Ltd (NBPOL) in relation to its conditional takeover offer at £7.15 per share cash (RM39.57 per share) or for a total of £1.073 million.
The offer will remain open for 57 days until 5pm on Dec 18, 2014 (Papua New Guinea [PNG] time) if received within PNG, or 1pm (United Kingdom time) if received within the UK on Dec 18, 2014.
According to its announcement last Thursday, NBPOL’s independent directors have unanimously recommended that shareholders accept the offer, in the absence of a superior proposal. Pursuant to the completion of the takeover by end-2014, Sime Darby Plantation Sdn Bhd’s enlarged land bank would measure about one million hectares.
Sime Darby reiterated that the offer is in line with its strategy blueprint to expand the land bank of Sime Darby Plantation, while NBPOL, with its brownfield assets, is expected to contribute immediately to earnings without the incumbent risk associated with a greenfield expansion.
It said the offer is expected to result in potential synergies between the group and NBPOL by way of expansion into the upstream and downstream sectors, combined research and development facilities, and new growth opportunities in PNG.
The offer will be financed via internal funds and borrowings, the exact quantum of which cannot yet be ascertained as the final amount will be dependent on the level of acceptances. Sime Darby has said it would fund 80% of the acquisition via borrowings.
We remain negative on the proposal. We earlier cut our fair value with a wider discount to an unchanged sum-of-parts (SOP) value. We deem the high valuation at 22 times of financial year 2015 forecast consensus earnings and the premium to be paid for NBPOL as having an offsetting effect on the unlocking of value from the potential listing of the auto division.
Nonetheless, we do acknowledge that the value propositions ahead would depend largely on what synergies and additional benefits Sime Darby could derive from the acquisition.
We maintain “buy”, with an unchanged fair value of RM10.58 per share — based on a 15% discount to our SOP value of RM12.45 per share. The stock remains a beneficiary of any upward trend in crude palm oil prices. — AmResearch Sdn Bhd
This article first appeared in The Edge Financial Daily, on October 27, 2014.