Sime Darby demerger exercise can enhance conglomerate’s value by 10%
PETALING JAYA: Sime Darby Bhd’s upcoming demerger exercise is projected to create at least RM5bil to RM6bil in total value, according to PublicInvest Research.
The corporate exercise, which is anticipated to be completed by the end of this year, could create a value enhancement of 9% to 10% for Sime Darby, in contrast to the current structure.
PublicInvest Research indicated that Sime Darby Property Bhd could be the key growth driver in value creation, given the tremendous asset value to be unlocked.
“In addition, assuming all three units break into the FBM KLCI Index as component members, our calculations show a potential 0.5% or estimated 10-point lift to the KLCI.
“The current price of RM9.05 represents a steal and a short-term trading opportunity. Our ‘outperform’ call is therefore reaffirmed with a sum-of-parts derived target price of RM9.72,” said the research house in a note.
The conglomerate plans to list its property and plantation arms in an attempt to unlock sustainable value for the group and its investors.
The move will see the creation of three standalone listed pure plays, namely, Sime Darby Plantation, Sime Darby Property and a leaner Sime Darby itself.
Upon the completion of Sime Darby’s corporate restructuring exercise, the holding company will handle the automotive and heavy machinery businesses.
Touted as one of the world’s leading plantation players, Sime Darby Plantation will own 602,509ha of planted area across Malaysia, Indonesia, Liberia and Papua New Guinea, with a combined fresh fruit bunch (FFB) production of 9.7 million tonnes.
“We derive an estimated market capitalisation of RM30bil based on a forward earnings of RM1.2bil, pegged to a price-to-earnings multiple of 25 times, which we think is justifiable given the huge sizeable landbank and FFB production,” said PublicInvest Research.
As for Sime Darby Property, the research house noted that it currently owns 16,938 acres of developable land spanning the Klang Valley, Negri Sembilan and Johor with a total estimated gross development value of RM101bil, to last over the next 15 to 20 years.
The company has further access to additional landbank of 11,806 acres through land option agreements.
“We think there is tremendous potential upside for Sime Darby Property, as the majority of its landbank is strategically located in close proximity to the Malaysia Vision Valley and high-speed rail projects,” it said.
“Valuations could be further lift- ed when the property market starts picking up after seeing a slowdown over the last two years. Based on our conservative estimated realisable net asset value valuation, the property unit’s market capitalisation would be valued in the range of RM12bil to RM17bil, making it one of the biggest property players in Malaysia.
“From the investors’ perspective, we believe Sime Darby Property would provide more potential upside, given its low entry of landbank cost, strategically located landbank next to major developments or economic corridors and huge landbank across three states,” it said.
With regard to Sime Darby itself, PublicInvest Research opined that its market capitalisation could reach a minimum RM15bil post-demerger. Its market capitalisation stands at RM61.41bil currently.
“Given the recent sharp rally in commodity prices, we believe the company’s industrial sales are set to pick up, driven by increased mining activities with the sharp rebound in commodity prices,” said the research house.