March 8, 2011

SIME - Sime Darby building vegetable oil plant in France

Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: MIDF

Sime Darby Bhd
(March 8, RM9.10)
Maintain buy at RM9.13 with target price RM11.86
: Sime Darby announced that Sime Darby Plantation Sdn Bhd is planning to build a vegetable oil plant in Europe. The proposed location is in Languedoc-Roussillon, France.

Languedoc-Roussillon is in the central region of the south of France with a total population of about 2.4 million.'' Historically, agriculture was the main economic activity. The establishment of the processing plant will benefit the local'' growers of crops such as sunflowers. The palm-based feedstock for the plant will also be sourced from Sime's operations in Liberia.

We believe Languedoc-Roussillon is a 'safe' choice for Sime Darby Plantation as the town has a business park which the French authority is promoting for new businesses. Currently, there are five regional business parks available for traditional industrial, traditional heritage professions, high-tech and life science, logistics and agribusiness and artisanal and industrial. ''

The total capex required has yet to be quantified. However, with the current cash position at RM4.3 billion (as at December'' 2010), internal financing should not be a problem for Sime Darby.'' ''

At this current juncture, we maintain our FY11 and FY12 earnings forecast as the proposed'' plant will only be in operation by end-2013 subject to the results of the feasibility study and the final approval from Sime's board of directors

We are positive on Sime Darby's French move as it reflects the company's commitment to its overseas expansion plan. Late last year the company obtained a 63-year land concession in Liberia, and will be pumping RM70 million to develop a potentially sizeable area of 220,000ha. We reiterate our 'buy' recommendation for Sime Darby Plantation at an unchanged target price of RM11.86, derived from sum-of-parts valuation. ' MIDF Research, March 8


This article appeared in The Edge Financial Daily, March 9, 2011.

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