Sime seen unlocking value via restructuring plan

PETALING JAYA: The move by one of Malaysia’s largest property developer Sime Darby Bhd to create three stand-alone businesses will help the group unlock the value through better appreciation of its individual business units.

The conglomerate has announced that it plans to spin off its plantations and property businesses in separate listings on Bursa Malaysia, while the trading and logistic businesses would remain under Sime Darby, which would retain its listed status.

“The exercise could help the group unlock value via the better appreciation of its individual business units as pure plays and the removal of the discount attached to its conglomerate structure,” CIMB research said in a note yesterday.

RHB Research analysts added that although management made no indication of a timeline, Sime Darby is expected to implement the restructuring plan faster than anticipated given the speed of the board’s approval of the listing plan.

According to CIMB Reseach, the spin off of Sime Darby Plantation, which has a landbank of 988,599 ha and a planted area of 603,254 ha, will make it the largest oil palm plantation company in the world.

“In our sum-of-parts (SOP) valuation, we value the plantation division at RM39bil, based on financial year 2018 (FY18) price/earnings ratio (P/E) of 26 times and enterprise value / hectare (EV/ha) of RM63700. This will place it as the largest listed plantation company in Malaysia,” CIMB analysts stated.

Furthermore, the research house noted that Sime Darby‘s property division, which consists of 23 townships and approximately 28,000 acres of land, is expected to benefit from projects such as the Malaysia Vision Valley and the high speed rail and is valued at RM16bil.

Meanwhile, Hong Leong Investment Bank (HLIB) valued Sime Darby’s property business at RM19.8bil based on the real net asset value (RNAV) of its existing landbank, RM1.55 per share and RM0.18 per warrant for its remaining 10% stake in Eastern & Oriental Bhd.

However, Sime Darby’s industrial and motors divisions, together with the logistics and healthcare divisions will remain within, after the spin-off of the property and plantation units.

“The rest of the business could be valued at RM11bil, post demerger of plantation and property,” CIMB analysts stated.

“Sime Darby remains an add with a higher SOP based target price of RM9.80 due to its plans to unlock value and its better earnings prospects in view of higher crude palm oil and coal prices in the future quarters,” CIMB stated. HLIB and RHB also maintained their buy call for Sime Darby.

Sime Darby closed yesterday at RM9.23, up 41 sen or 4.65%.