Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: RHB
Sime Darby Bhd
(Feb 16, RM9.28)
Maintain outperform at RM9.28 with fair value RM11.10: According to a news report, Abu Dhabi-based energy firm, Emirates International Energy Services (EMAS), has filed a US$200 million (RM610 million) lawsuit against Sime Engineering Sdn Bhd,'' stemming from a dispute over tender bids. The media report stated that Sime had backed out of seven large-scale projects 'to help other unnamed foreign companies win tenders'.
Sime has clarified in a press statement that it did sign an exclusive agency agreement with EMAS in Sept 2006, where EMAS was to identify suitable O&G projects for Sime to participate in, but that Sime is under no obligation to accept EMAS' recommendations and that there is no time bound requirement in the agreement to decline their recommendations. Management further noted that while EMAS did bring several projects to its attention, Sime did not tender for these projects, after deeming them unsuitable.
EMAS wrote a letter to Sime in August 2010, claiming losses for not accepting those projects, but after seeking legal advice, Sime replied to EMAS that there was no basis for the claims according to the agreement, and that such a claim is grounds to treat the agreement as being repudiated and a ground for termination. As at the time of the press release, Sime had yet to receive any official lawsuit from EMAS.
We understand the agreement stated that payment to the agent would only be made if Sime were to tender for the projects and that payment was to be based on a certain percentage of the project cost. Given that Sime did not actually tender for any of the projects brought to them by EMAS, there shouldn't be any basis for the lawsuit, and we are not too worried about it, unless it turns out to be for a different claim.
Our forecasts remain unchanged. The risks include: (i) A convincing reversal in crude oil price trends resulting in the reversal of CPO and other vegetable oils price trends; (ii) Weather abnormalities resulting in an over or under-supply of vegetable oils; (iv) Increased emphasis on implementing global biofuel mandates and trans-fat policies; and (v) a slower than expected global economic recovery resulting in lower than expected demand for vegetable oils.
We make no change to our target price of RM11.10 and our 'outperform' recommendation. ' RHB Research, Feb 16
This article appeared in The Edge Financial Daily, February 17, 2011.
Company Name: SIME DARBY BHD
Research House: RHB
Sime Darby Bhd
(Feb 16, RM9.28)
Maintain outperform at RM9.28 with fair value RM11.10: According to a news report, Abu Dhabi-based energy firm, Emirates International Energy Services (EMAS), has filed a US$200 million (RM610 million) lawsuit against Sime Engineering Sdn Bhd,'' stemming from a dispute over tender bids. The media report stated that Sime had backed out of seven large-scale projects 'to help other unnamed foreign companies win tenders'.
Sime has clarified in a press statement that it did sign an exclusive agency agreement with EMAS in Sept 2006, where EMAS was to identify suitable O&G projects for Sime to participate in, but that Sime is under no obligation to accept EMAS' recommendations and that there is no time bound requirement in the agreement to decline their recommendations. Management further noted that while EMAS did bring several projects to its attention, Sime did not tender for these projects, after deeming them unsuitable.
EMAS wrote a letter to Sime in August 2010, claiming losses for not accepting those projects, but after seeking legal advice, Sime replied to EMAS that there was no basis for the claims according to the agreement, and that such a claim is grounds to treat the agreement as being repudiated and a ground for termination. As at the time of the press release, Sime had yet to receive any official lawsuit from EMAS.
We understand the agreement stated that payment to the agent would only be made if Sime were to tender for the projects and that payment was to be based on a certain percentage of the project cost. Given that Sime did not actually tender for any of the projects brought to them by EMAS, there shouldn't be any basis for the lawsuit, and we are not too worried about it, unless it turns out to be for a different claim.
Our forecasts remain unchanged. The risks include: (i) A convincing reversal in crude oil price trends resulting in the reversal of CPO and other vegetable oils price trends; (ii) Weather abnormalities resulting in an over or under-supply of vegetable oils; (iv) Increased emphasis on implementing global biofuel mandates and trans-fat policies; and (v) a slower than expected global economic recovery resulting in lower than expected demand for vegetable oils.
We make no change to our target price of RM11.10 and our 'outperform' recommendation. ' RHB Research, Feb 16
This article appeared in The Edge Financial Daily, February 17, 2011.
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