A sure bet is Sime Darby Bhd
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.