Sime Darby's plan to unlock asset value draws attention, shares raised to 'buy'

PETALING JAYA: Sime Darby Bhd's plan to unlock the value of its assets has whet the appetite for the stock.

CIMB Research yesterday upgraded the stock from a 'hold' to a 'buy' with a higher target price on expectation that Sime Darby will seek a separate listing for its plantation division.Meanwhile, Public Investment Research believed that a standalone plantation unit could be worth as much as the entire group at current market price.

Sime Darby, at a briefing last Friday, revealed that it plans to unlock shareholder value via a listing or demerger of its key business segments.It said it planned to engage bankers within the next one or two weeks to study the possibilities, in line with the aspirations of its strategic shareholder Permodalan Nasional Bhd.

CIMB Research said it expected these exercises to boost sentiment on the stock.'We believe that the most likely scenario under current market conditions is to demerge its plantation division.'This will be similar to the exercise carried out by IOI Corp to demerge its property and plantation divisions in 2013,' it said in a note yesterday.

The research house said a demerger was a more likely scenario than an initial public offering (IPO).It said this was because the group may not be able to fetch optimal valuations for its plantation assets under an IPO, as it recently stepped up its replanting programme for its operations in Malaysia and Indonesia.

It estimated that Sime Darby Plantations could be listed with a market capitalisation of between RM30bil and RM42bil, placing it as the largest listed Malaysian plantation company by market capitalisation.It revised its sum-of-parts value for the group to RM9.43 from RM8.20 and upgraded the stock to 'add' from 'hold'.

Public Investment Bank Research said Sime Darby may target a standalone listing for New Britain Palm Oil Ltd (NBPOL), which was acquired by the group in a RM6bil deal in March last year.It said this was likely, given NBPOL's attractive age profile, strong fresh fruit bunch production growth, sizeable planted land bank and higher-than-average yield.

Assuming a conservative valuation of RM85,000 per ha for its 84,000 ha planted land bank in Papua New Guinea and Solomon Islands, the research house said this could value NBPOL at RM7.2bil.'The proceeds raised could be used to further pare down the group's gearing level, which is currently standing at 41%,' it said.

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