Sime Darby’s corporate exercise ‘positive to share price sentiment’
KUCHING: Sime Darby Bhd’s (Sime Darby) potential corporate exercise with the group’s plantation division is a boost to the group’s share price sentiment.
According to the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research), there have been news that Sime Darby is looking at carving out the group’s plantation business as the first step of its wider demerger strategy, with the initial public offering (IPO) to be conducted in the second half of current year 2017 (2HCY17).
“We believe that the potential corporate exercise involving Sime Darby is likely to unlock the value of the group as a conglomerate,” it said in a note yesterday.
As a result, MIDF Research said shareholders are likely to enjoy long term benefit – assuming that the corporate exercise goes through smoothly – from lower “conglomerate discount” attached by the market.
It noted that pure planters usually command higher price earnings (PE) valuation against conglomerates with many businesses.
MIDF Research observed that Sime Darby’s plantation division is a significant earnings contributor.
The research arm pointed out that in financial year 2016 (FY16), plantation division generated earnings before interest and tax ( EBIT) of RM1.05 billion or 34 per cent contribution to the group.
It also noted out that the contribution is likely to increase in FY17 given the high crude palm oil (CPO) price.
All in, MIDF Research maintained ‘buy’ on Sime Darby and target price of RM9.05 per share, which was based on sum of parts (SOP) valuation.
MIDF Research continued to like Sime Darby as the group’s plantation division was expected to benefit from high CPO price.
The research arm expected positive news flow resulting from potential corporate exercise to unlock the value of the conglomerate and decent dividend yield of 3.7 per cent.