Analysts laud Sime Darby demerger, plantations likely to be listed first
KUCHING: Analysts across the board laud Sime Darby Bhd (Sime Darby) rolling out its long-awaited demerger exercise plans last week, which divides the group into three entities, namely Sime Darby Plantation Bhd, Sime Darby Property Bhd and Sime Darby Bhd.
MIDF Amanah Investment Bank Bhd believed that the pure plays strategy will allow the management to focus on each division operation.
“As a result, this should unlock the value of SIME as conglomerate. We think that shareholders are likely to enjoy long term benefit from the removal of ‘conglomerate discount’ attached by the market,” it said in a report last week.
“This is especially true for the plantation division as pure planters tend to command higher PE valuation against conglomerates with many businesses.”
Public Investment Bank Bhd (PublicInvest Research) welcomed the news as it helps maximise shareholder returns by unlocking the asset value of each core entity as valuations will be more attractive being a pure play business entity rather than a giant conglomerate.
“We think that the plantation arm will be the first vehicle to kick-start the demerger plans due to the current bullish crude palm oil price environment.”
The idea of a demerger has been in the pipeline since the appointment of Tan Sri Mohd Bakke Salleh as Sime Darby’s group chief executive officer in 2010.
The core businesses were divided into plantation, property, industrial, motors and logistics with each core entity having its own board of management and led by respective division heads.
Since then, there were already plans to do initial public offerings for the property and motor segments. The plans were put on hold or subjected to further delays due to uncertainties over market outlook and poor market sentiment for the respective sectors.
Based on its gigantic planted land bank area of 603,254 hectares spanning across Malaysia, Indonesia, Papua New Guinea and Liberia, Sime Darby Plantation is set to become the biggest public listed plantation company in Malaysia while also being able to boast of having the largest planted land bank in the world.
“Taking into the consideration its land bank size, regional footprint, production growth, yield, age profile coupled with the current strong CPO prices, we strongly believe the plantation arm should be able to attract healthy valuations for its public listing,” PublicInvest Research added.
“Based on our preliminary studies, the market capitalisation would likely be in the range of RM48billion to RM55 billion or an estimated price earnings ratio between 25 to 30 times.”
PublicInvest Research opined that Sime Darby’s property listing might take a while as based on its annual property sales of more than RM2 billion, its property arm is also set to be one of the largest listed property players in the Malaysian market.
“It currently has total unbilled sales of RM1.2 billion and targets to see more launches in the near-term with a combined gross development value of RM4.9 billion.
“In addition, it is also starting to reap gains from the London Battersea Power Station project with the first property earnings to be recognized in 3QFY17. Based on our valuations, the property arm could be listed at an estimated market capitalisation of not less than RM10 billion.
“However, we think that the property listing might be in the later part of the year as property sentiment remains lacklustre currently.”