A sure bet is Sime Darby Bhd

The Star Malaysia - StarBiz - - News - By M. SHANMUGAM shan@thes­tar.com.my

PE­TAL­ING JAYA: When the list­ing of Sime Darby Bhd’s plan­ta­tion and prop­erty busi­nesses takes place to­day, Bursa Malaysia should see a hive of ac­tiv­ity.

Sime Darby Plan­ta­tion Bhd is a “must buy” stock, con­sid­er­ing that it is a heavy­weight in the sec­tor. Any fund want­ing ex­po­sure to the plan­ta­tion sec­tor would need a piece of the stock in its port­fo­lio.

At its list­ing price of RM5.59 per share, its val­u­a­tion is un­de­mand­ing com­pared to its peers such as IOI Corp Bhd and Kuala Lumpur Ke­pong Bhd. Sime Darby Plan­ta­tion will be listed with a mar­ket val­u­a­tion of RM38­bil, mak­ing it one of the most valu­able plan­ta­tion com­pa­nies in the world.

Most re­search houses have tar­geted the price just above its ref­er­ence price for list­ing. The new Sime Darby Plan­ta­tion would come with a health­ier bal­ance sheet – gear­ing of 0.6 times – and with plan­ta­tions lo­cated in Malaysia, Indonesia, Pa­pua New Guinea (PNG) and the Solomon Is­lands.

The plan­ta­tions in PNG and the Solomon Is­lands have high yields com­pared to the ones in Malaysia and Indonesia. Sime Darby Plan­ta­tion’s tar­get is for the ef­fi­ciency of the plan­ta­tions in all three coun­tries to hit the 25% ef­fi­ciency level by 2025.

At the mo­ment, the plan­ta­tions in Indonesia are pro­duc­ing 16 tonnes per ha, com­pared to PNG’s out­put of 23 tonnes per ha and Malaysia’s av­er­age of 21 tonnes per ha.

The key to fur­ther up­grades in Sime Darby Plan­ta­tion is the per­for­mance of its plan­ta­tions in Indonesia and the rise in crude palm oil prices. Al­most a third of the plan­ta­tions are lo­cated in Indonesia, which gives it a lot of room for im­prove­ment, that would only come with time and tremen­dous ef­fort.

The other heavy­weight that will be listed is Sime Darby Prop­erty Bhd. In terms of mar­ket cap­i­tal­i­sa­tion, Sime Darby Prop­erty would not be any­where near the cur­rent leader in the prop­erty de­vel­op­ment sec­tor – SP Se­tia Bhd.

How­ever, Sime Darby Prop­erty has vast tracts of land ripe for de­vel­op­ment around the Klang Val­ley, stretch­ing from Rawang in the north right down to Port Dick­son in the south. The huge chunks of land sit on both sides of high­ways and are ideal for township de­vel­op­ments.

Sime Darby Prop­erty’s val­u­a­tion at its list­ing price is com­pa­ra­ble to the likes of Eco World De­vel­op­ment Group Bhd and Mah Sing Group Bhd.

How­ever, sen­ti­ment on the prop­erty sec­tor is weak. For prop­erty com­pa­nies, hav­ing land in prime lo­ca­tions is not enough. Sime Darby Prop­erty needs a siz­zling piece of township de­vel­op­ment that would keep it go­ing for a few years as the sec­tor rides through a rough patch.

The sure win­ner in the de­merger, mean­while, is the ex­ist­ing Sime Darby.

It will be an­chored by its au­to­mo­tive busi­ness and heavy in­dus­trial seg­ment that have their busi­nesses spread across Asia, Aus­tralia and New Zealand.

Sime Darby is among the top- three big­gest dis­trib­u­tors of BMW cars and heavy in­dus­trial ve­hi­cles man­u­fac­tured by Cater­pil­lar. Last year, the heavy in­dus­trial divi­sion pro­vided for its op­er­a­tions in Aus­tralia, hence its books would have been cleaned up.

As for the au­to­mo­tive sec­tor, the sales of BMW cars across the re­gion have been strong.

Also, the com­pany will pay out a div­i­dend per share of 17 sen. The ex-date for the stock is Dec 4.

While it’s true that the div­i­dend is a one-off pay­ment, Sime Darby has a lot of as­sets that can be dis­posed.

Within Sime Darby is the health­care busi­ness, a 12% stake in Eastern and Ori­en­tal Bhd, the port busi­ness in China and 8,700 acres in Ni­lai with con­nec­tiv­ity to the com­muter train ser­vice and high-speed rail project.

Sime Darby is over-cap­i­talised and the only nat­u­ral thing to do next is to sell off the un­der­per­form­ing as­sets and re­turn the money to share­hold­ers.

So, it’s not hard to fathom why Sime Darby, the hold­ing com­pany, is a win­ner in the de­merger.

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