Fresh demerger talks push up Sime Darby shares

Reports suggest PNB revisiting proposals to break up company

PETALING JAYA: Shares in Sime Darby Bhd, one of the country’s biggest conglomerate, jumped to their highest since May 2015 on fresh talks about potential demerger involving its key business units.

The stock surged 18 sen, or 2.11% yesterday to RM8.70 with about 11 million shares traded.

News reports over the weekend suggested that Sime Darby’s controlling shareholder Permodalan Nasional Bhd (PNB) is revisiting proposals to break up the company.

The recent strong recovery in crude palm oil (CPO) prices presents a window of opportunity for a major corporate exercise involving Sime Darby Plantations (SDP), which contributes about a third of Sime’s total revenue and net profit during its 2016 financial year.

“The news is positive to the sentiment on Sime Darby share price,” MIDF Research said in report yesterday.

“Shareholders are likely to enjoy longterm benefit (assuming that the corporate exercise goes through smoothly) from lower ‘conglomerate discount’ attached by the market,” MIDF noted, adding that pure planters usually commanded higher price-earnings valuation against conglomerates with many businesses.

MIDF maintained its “buy” rating on Sime with an unchanged target price of RM9.05 based on sum-of-parts valuation.

It likes Sime for its plantation division since it would benefit from high CPO prices, apart from positive newsflows resulting from the potential corporate exercise and its decent 3.7% dividend yield.

Sources told StarBiz that PNB would implement more major changes to Sime Darby and UMW Holdings Bhd, its two top holdings, as part of its long-term strategy to unlock value and monetise the conglomerates’ assets.

An investment banker had said that the demerger idea in both Sime and UMW was not new and PNB chairman Tan Sri Abdul Wahid Omar has been the catalytic force to bring about major changes in the two groups.

The two main priorities include to lighten their debt load and strengthen the individual business segments.

Another analyst said if Sime opted for the move, the concern was on the residual debt left behind, which will be serviced by the automotive and industrial businesses, among others.

The analyst said this was because separating Sime Darby Plantation will take out a large chunk of cash flow out of the holding company, but the move was necessary to maximise value for Sime.

UOB KayHian Research, in its Jan 18 report, said that Sime may opt to demerge its plantation business, while merging its property division in a bid to create better value for shareholder.

The demerger of the plantation unit could fetch better valuation compared with Sime’s automotive or property segments, it pointed out.

The research house added that the move would be supported by rising CPO prices and recovery in fresh fruit bunch (FFB) yields as well as FFB production cost after the severe drought.

Phillip Capital Management chief investment officer Ang Kok Seng told Bloomberg yesterday that talks on demerging some of Sime’s operations have been going on for a few months, namely listing its plantation unit.

“There’s also talks about listing its automotive division previously, and the merging of its property arm with other property assets of PNB like I&P Group.

“Newsflows on Sime developing Carey Island are also there and momentum for traders is present,” Ang noted.