Sime Darby’s NBPOL deal likely to get EC approval

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Sime Darby Bhd
(Jan 7, RM9.02)

Maintain “buy” with a target price (TP) of RM10.58: We maintain “buy” on Sime Darby Bhd, with an unchanged fair value of RM10.58 per share based on a 15% discount to our sum-of-parts value of RM12.45 per share.

Sime Darby has for the second time extended the offer period for New Britain Palm Oil Ltd (NBPOL), this time to March 20, 2015 from Jan 20, 2015. Simultaneously, the second notice of variation to NBPOL takes into account the further extension in calculating the date by which the offer must become unconditional.

Sime Darby says the further extension is to accommodate the decision of the European Commission (EC), (expected by Jan 26) which is one of the conditions for the completion of the offer.

The company says it is a precautionary measure against the possibility that the EC’s decision could be delayed by any potential requests for additional information.

In the event that the EC makes any such requests, Sime Darby and NBPOL may require time to respond to it and this is likely to extend any decision by the EC Commission to beyond Jan 27, 2015.

We continue to believe that the deal is likely to obtain the approval of the EC, as it would largely be counter-intuitive to discourage the growth of sustainable palm oil.

Our only concern is the steep price that Sime Darby is paying for NBPOL. However, we still see Sime Darby as a prime beneficiary of any upward trend in crude palm oil prices.

Another catalyst in the pipeline is the proposed listing of its auto division, which could occur early in the second half of financial year 2015. — AmResearch Sdn Bhd, Jan 7.

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This article first appeared in The Edge Financial Daily, on January 8, 2015.