Wahid takes on the weakest link

Tan Sri Abdul Wahid Omar: "The time is not right for Permodalan Nasional Bhd (PNB) to invest abroad considering the ringgit is weak compared with its true value."

WHILE a demerger within the Sime Darby group has long been thought of, some industry observers feel that if Permodalan Nasional Bhd (PNB) group chairman Tan Sri Wahid Omar (pic) had not gotten the ball rolling, that plan could very well still be on the drawing board.

That could be true to a certain extent, seeing that Wahid assumed the head honcho position at the country’s largest fund-management company – a strategic shareholder in Sime Darby – in July 2016 and the demerger plan was announced six months later in January.

Under the plan, Sime Darby will split itself three ways, creating “pure play” listed entities for its plantation and property divisions.

Others, including its BMW distributorship, port operations and trading, will remain under the existing listed entity of Sime Darby Bhd.

The listings will take place at the end of this month.

Interestingly, Wahid is also chairman of Sime Darby Property, which of the three plays, probably stands out as the one which investors may be most lukewarm towards, given the current soft market sentiment within the industry.

Having said that, Sime Darby Poperty is in a sweet spot to a certain degree, as it owns the largest landbank in the country with approximately 17,000 acres of landbank covering Selangor right up to Johor, according to information on its website.

If it decides to unlock the value of these and assuming industry sentiment improves, the company should stand to benefit over the longer term.

As it stands currently, even with its large landbank, Sime Darby Property doesn’t have as high a turnover as its counterparts like SP Setia Bhd.

As of its financial year ended June 30, Sime Darby Property’s gross sales value stood at RM1.9bil.

In comparison, SP Setia’s sales for the nine months ended September 2017 was at RM2.82bil.

Not surprisingly, all eyes will be on Wahid and his next course of action as chairman of the property entity.

Fortress Capital Group CEO Thomas Yong says Wahid as chairman of Sime Darby Property will “probably provide the right leadership for a long-term strategy and execution plan to maximise the value of Sime Darby Property, given its strategic landbank”.

Will shareholders bet on his track record and go long on the property outfit? Time will tell.

No stranger to turnarounds

Wahid is no stranger to corporate exercises that have rejuvenated sluggish companies and excited the overall market.

These include various asset-unlocking and restructuring exercises.

“Wahid has a reputation for successful corporate turnarounds, notably at Telekom Malaysia Bhd (TM) and UEM Group,” Yong, who manages RM1bil in client money, says.

At UEM Group, the 53-year-old who also headed Malayan Banking Bhd for five years until 2013, is often credited for leading the turnaround of the-then debt-laden UEM-Renong Group, where he completed a couple of restructuring exercises.

The exercises had resulted in the listing of highway concessionaire PLUS Expressways Bhd and the creation and later listing of UEM World Bhd.

At TM, Wahid was known to be one of the key individuals who introduced various growth initiatives, including focusing on countries that are near to Malaysia for the expansion of its overseas operations.

“Wahid does have a good track record, the market has a bit of confidence in him,” Areca Capital CEO Danny Wong says.

Within the Sime Darby group, Wahid soon after joining PNB, the single largest shareholder in Sime Darby, oversaw a private placement exercise to shareholders. That was the first time Sime Darby went to its shareholders to raise money.

That exercise, also the biggest in South-East Asia in almost three years, saw new shares representing 5% of the group’s existing issued and paid-up share capital being placed out to local and foreign institutions.

The shares were priced at the top end of the offer price range of between RM7.40 and RM7.45 per share and collectively raised more than RM2.3bil.

“The placement, the first for the Sime Darby group, was well-received and gave confidence to the group,” an observer remarks.

Exactly what kind of value the demerger of Sime Darby group’s entities will create for shareholders remains largely to be seen, but observers concur that a separation of business segments within the giant conglomerate will create more accountability and focus per segment.

Post-listing, Areca’s Wong believes that as the country’s largest plantation and property companies, respectively, that is compelling enough a reason for investors to consider exposure to the firms.

Although he doesn’t own the Sime Darby stock now, he thinks that the demerged plantation and property entities would be able to command a premium of sorts.

“I may be keen on the entities once they are listed based on their size and leadership advantage,” Wong, who manages RM700mil in funds, says.

“I’m more sure of the plantation entity, given that commodity prices are on a mend and that’s good for earnings.

“As for the property entity, I may wait for a while to see how things shape up, but its landbank size is a definite advantage.”

The current Sime Darby group, which has a market value of over RM61.7bil based on yesterday’s closing share price of RM9.07, was created in 2007 via the merger of Golden Hope Plantations Bhd, Kumpulan Guthrie Bhd and Kumpulan Sime Darby Bhd.

At RM9.07, the stock is off its 52-week high of RM9.62 and is trading at a price-to-earnings ratio of 33 times its 2017 earnings, according to Bloomberg data.

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