MIDF Research said Sime Darby registered the highest net money inflow of RM25.37mil last week
KUALA LUMPUR: CIMB Equities Research is maintaining its earnings forecasts and sum-of-parts based target price of RM10.
“We continue to rate Sime as an Add on the potential upside from its plans to unlock value by offering investors direct exposure into the pure play. Key risk is proposals falling through,” it said on Friday.
The research house said Sime Darby held an analysts briefing on Thursday to discuss the future plans of its three pure plays.
This is part of the group’s early shareholders engagement session, following the submission of the draft prospectus exposure of Sime Darby Plantation
and Sime Darby Property.
To recap, Sime Darby has proposed to create three pure plays, via the listing of its plantation and property arms. It targets to complete the exercise by end-2017.
The group revealed that it is in the midst of determining the reference prices for the three entities, ahead of the demerger exercise.
This, as well as the decision on which of the three entities will be included in the KLCI index, will most likely be revealed around November, ahead of the target listing timeline of December.
Sime Darby Plantations targets to raise its fresh fruit bunches (FFB) yields to 25 tonnes a hectare (FY6/17: 19 tonnes per ha) and oil extraction rate (OER) to 25% (FY6/17: 21.3%) by 2025.
“If successful, we estimate that this could potentially raise its CPO output by 54% over the next eight years.
“It plans to achieve this target via (1) accelerated replanting; (2) superior planting materials; (3) water management and (4) mechanisation. The group plans to grow organically by maximising returns from its land rather than via M&A. It has set a dividend payout policy of 50%,” it said.
CIMB Research, said meanwhile, the property division will be more active in land bank management.
Sime Darby Property owns 16,938 acres of land with total estimated GDV of RM101.1bil, which are in the Klang Valley, Negeri Sembilan and Johor.
Its strategy includes prioritising the development of existing land bank, opportunities in purchasing land bank that can deliver products to the market, monetising non-strategic land to maximise value creation and identifying key strategic partnerships for selected parcels of land.
The group targets to pay out no less than 20% of its net profit as dividend.
Post demerger, Sime Darby will be mainly involved in the auto, industrial, logistics and healthcare businesses.
It is currently the second-largest BMW dealer and third-largest Caterpillar dealer in the world.
“We were pleasantly surprised to gather that the group’s industrial order book has shot up 47% to RM2.2bil as at end-August from end-June. This bodes well for future earnings.
“There are also plans to unlock the value of non-core assets, which include its 30% stake in Tesco and 11.57% stake in E&O, over time.
“The key positive surprise from the briefing is the strong pick-up in the industrial order book, following the improvement in coal prices.
“There were no major surprises in terms of the strategy layout by its various divisions, which is broadly in line with those pursued by its peers. We are of the view that the key to unlocking the assets will depend on the execution of these plans by key management teams,” it said.
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