Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: RHB
Sime Darby Bhd
(April 19, RM8.73)
Maintain outperform at RM8.69, fair value of RM9.85: According to a report in The Edge weekly, Sime Darby is planning to list its Indonesian plantations on the Jakarta Stock Exchange in 2011, and its China and Hong Kong motor operations on the Hong Kong Stock Exchange in 2012.
Sime is reportedly in the process of identifying strategic partners to expand further into Indonesia, which could also see an injection of the local partner's plantation assets into the listed vehicle.
We believe the listing of the Indonesian plantation assets would be positive for the group, as it could help unlock some value, given that the medium-term growth of Sime's plantation division earnings are expected to come mainly from the Indonesian estates due to its younger age profile.
At end-FY06/09, Sime's planted Indonesian estates comprise about 37% of its total planted landbank, contributing about 30% to total group fresh fruit bunches (FFB) production, due to the younger age profile of the trees, which led to lower FFB yields of 16.6 tonnes per hectare (t/ha) versus the 22.9t/ha achieved in the Malaysian estates.
We note that FFB yields in Indonesia have improved significantly in 1HFY10, having risen by 27% to 10.5t/ha (from 8.3t/ha in 1HFY09), as the age profile of the trees improved and as production recovered after the impact of the bad weather in the previous year.
Assuming about 30% of Sime's plantations profit we projected for FY10 comes from Indonesia, and applying a price-to-earnings (PE) of 14.5 times to it (being 20% discount to our sector target PE of large Malaysian plantations companies and in line with the average PE for Indonesian listed companies), we estimate Sime's Indonesian listed plantations could be worth RM6.5 billion-RM7 billion, at least.
Nevertheless, while listing would help bring in some extra funds to the group, we do not expect it to add any significant value to the Malaysian-listed entity, unless the funds are put to use elsewhere with higher returns.
On the listing of the motor division in Hong Kong, we believe this may not necessarily be a good idea, given that the operating environment in China is intensely competitive and that sustainability of earnings and therefore, added value from listing it, may not be meaningful.
Currently China contributes 41% to Sime's motor division earnings and is the fastest-growing market for Sime, but we note that margins are diminishing, at just 3.3% in 1HFY10 (versus 5.9% in 1HFY09).
Our forecasts are unchanged. We maintain our sum-of-parts-based (SOP) fair value of RM9.85 and outperform recommendation on the back of further upside via stronger operational efficiencies, future positive merger and acquisition activities and better merger synergies. - RHB Research Institute, April 19
This article appeared in The Edge Financial Daily, April 16, 2010.
Company Name: SIME DARBY BHD
Research House: RHB
Sime Darby Bhd
(April 19, RM8.73)
Maintain outperform at RM8.69, fair value of RM9.85: According to a report in The Edge weekly, Sime Darby is planning to list its Indonesian plantations on the Jakarta Stock Exchange in 2011, and its China and Hong Kong motor operations on the Hong Kong Stock Exchange in 2012.
Sime is reportedly in the process of identifying strategic partners to expand further into Indonesia, which could also see an injection of the local partner's plantation assets into the listed vehicle.
We believe the listing of the Indonesian plantation assets would be positive for the group, as it could help unlock some value, given that the medium-term growth of Sime's plantation division earnings are expected to come mainly from the Indonesian estates due to its younger age profile.
At end-FY06/09, Sime's planted Indonesian estates comprise about 37% of its total planted landbank, contributing about 30% to total group fresh fruit bunches (FFB) production, due to the younger age profile of the trees, which led to lower FFB yields of 16.6 tonnes per hectare (t/ha) versus the 22.9t/ha achieved in the Malaysian estates.
We note that FFB yields in Indonesia have improved significantly in 1HFY10, having risen by 27% to 10.5t/ha (from 8.3t/ha in 1HFY09), as the age profile of the trees improved and as production recovered after the impact of the bad weather in the previous year.
Assuming about 30% of Sime's plantations profit we projected for FY10 comes from Indonesia, and applying a price-to-earnings (PE) of 14.5 times to it (being 20% discount to our sector target PE of large Malaysian plantations companies and in line with the average PE for Indonesian listed companies), we estimate Sime's Indonesian listed plantations could be worth RM6.5 billion-RM7 billion, at least.
Nevertheless, while listing would help bring in some extra funds to the group, we do not expect it to add any significant value to the Malaysian-listed entity, unless the funds are put to use elsewhere with higher returns.
On the listing of the motor division in Hong Kong, we believe this may not necessarily be a good idea, given that the operating environment in China is intensely competitive and that sustainability of earnings and therefore, added value from listing it, may not be meaningful.
Currently China contributes 41% to Sime's motor division earnings and is the fastest-growing market for Sime, but we note that margins are diminishing, at just 3.3% in 1HFY10 (versus 5.9% in 1HFY09).
Our forecasts are unchanged. We maintain our sum-of-parts-based (SOP) fair value of RM9.85 and outperform recommendation on the back of further upside via stronger operational efficiencies, future positive merger and acquisition activities and better merger synergies. - RHB Research Institute, April 19
This article appeared in The Edge Financial Daily, April 16, 2010.
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