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Monday August 6, 2007
By Hanim Adnan
Industry observers are pegging the group's market capitalisation at RM75.5bil. Its proforma revenue is set at RM26.4bil and operating profit at RM2.7bil.
En route for listing on the main board of Bursa Malaysia in November, Synergy Drive is the merged entity of Permodalan Nasional Bhd's companies, Sime Darby Bhd, Golden Hope Plantations Bhd and Kumpulan Guthrie Bhd.
Plantation analysts said the next three months would be “critical” for the parties involved in finally wrapping up the deal.
Both Sime Darby and Golden Hope will hold their EGMs on Aug 17 while Guthrie's EGM is slated for Aug 16.
Analysts expect the merger deadline to remain “intact”.
Upon shareholders' approval at the EGMs, the companies related to the deal will likely be “de-listed” in October.
Some analysts said the share prices of these companies would likely experience some “weakening” in the short term as the uncertainty might lead some investors to sell down prior to the four-to-six weeks trading suspension period.
An analyst with a foreign brokerage said Synergy Drive would be the world's largest oil palm player in terms of crude palm oil (CPO) production and also, Malaysia's largest property developer by land bank size.
In plantations alone, the enlarged entity accounts for about 6% of the total global CPO production.
“Investors should recognise its prospects, given the enlarged entity's status as a well-diversified conglomerate with strategic core businesses,” he added.
At a glance, the analyst said the Synergy Drive group seemed to emulate Sime Darby's previous three-phased road map.
In Phase 1, the group will focus on establishing the platform in 2007-2008; Phase 2 to drive its focused portfolio to full value (2008-2009) and Phase 3 to explore new frontiers by 2010.
Credit Suisse said the streamlining of the targeted companies would enable Synergy Drive to derive cost and revenue synergies resulting in earnings before income tax improvement of about RM400mil to RM500mil per year beginning July 1, 2009.
“Synergy Drive can possibly show cost savings of about RM100mil in the first year and about RM200mil to RM300mil in the second year of operations,” it added.
The brokerage believes that Synergy Drive would be monitored through Key Performance Indices (KPIs). Judging from the past implementation of KPIs, most government-linked companies have shown good results.
Other issues include the appointment of the board of directors after the EGMs.
“It is believed that almost half will come from PNB but the chairman may not necessarily be from PNB,” it said.
With PNB remaining the single largest shareholder of Synergy Drive collectively at 49.8%, the brokerage expects the merged entity to have a relatively generous dividend policy.
In addition, no spin-offs from non-plantation assets are expected for the next few years, as Synergy Drive will need to evaluate its different divisions.
Credit Suisse, which is maintaining an overweight on the plantation mega merger deal, has a long-term fair value for Sime Darby at RM12.70 and Golden Hope at RM10.80 based on a CPO price assumption of RM2,500 per tonne.
The brokerage also has a 12-month target price of RM12.20 for Sime Darby and RM10.30 for Golden Hope.
Meanwhile, Citigroup in its latest research report, has valued Synergy Drive's market capitalisation at RM75.5bil or RM12.54 per share.
This will translate into RM15.42 per Sime Darby share based on a swap ratio of 1.23 Synergy Drive shares.
“We valued the plantation business on a targeted market cap and CPO production multiple derived from the three largest listed plantations in Malaysia - IOI Corp Bhd, Kuala Lumpur Kepong Bhd and PPB Oil Palms Bhd,” it added.
Synergy Drive's property division is valued at book cost and the rest of the divisions are based on sector-average forward price earnings (PEs) of 12 times for heavy equipment, automobile and energy divisions as well as PEs of 10 times for general trading.
Citigroup said the market was pricing IOI Corp's 805,627 tonnes annual CPO output at RM32bil. “Based on this metric, Synergy Drive's 2.1 million tonnes of CPO production should be worth RM75.5bil,” it added.
By buying into Sime Darby, Citigroup said an investor would get exposure to a plantation business at a “large” discount while the 40,000-acre land bank and the rest of Synergy Drive's businesses “come for free”.
It said: “This is even before taking into account cost savings from plantations, the market value of 16,000ha land bank with development potential and other businesses.”
Citigroup has rated Sime Darby as low risk, based on its quantitative risk-rating analysis which tracks 260 days of share price volatility.
Sime Darby has overseas operations in Hong Kong, Singapore and Australia. It said the changes in economic activities in these countries could adversely affect earnings.
The targeted price for Sime Darby (at RM15.42) is based on the successful completion of Synergy Drive's offers.
“Any delays or problems in the merger process can adversely affect Sime Darby's share price performance,” it added.
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