SIME (4197) - Sime Darby Bhd - Takeaways from CEO interview
Target RM9.07 (Stock Rating: HOLD)
In an interview with The Edge, Sime’s CEO spoke on the way he plans to create value for shareholders. He also reflected on the challenges facing the group and addressed the group’s plans for NBPOL following the recent takeover. We are overall neutral on the report and believe investors’ focus will be on Sime’s execution of its plans to create value from the NBPOL acquisition and the performances of its key divisions. We maintain our earnings forecasts, SOP-based target price and Hold rating due to the lack of near-term catalysts.
What Happened
In an interview with The Edge Weekly, Tan Sri Mohd Bakke Salleh, CEO of Sime Darby Group revealed the following: (1) Sime is always evaluating opportunities to create value for shareholders but is also mindful of implementing them at the right time. It plans to continue improving its operational efficiencies and pursue strategic portfolio growth through acquisitions, initial public offering and/or strategic alliances; (2) the group cannot comment on speculation pertaining to a possible merger with another PNB property arm; (3) he cited the weak commodity prices and identifying the right opportunities as the main challenges over the past five years; (4) the weaker Ringgit is not good for its auto business but this is partially offset by the group’s overseas revenue (50% of total revenue); (5) he believes that Sime paid a fair market price for New Britain Palm Oil (NBPOL), given the scarcity of suitable landbank, as well as the high costs and risks associated with greenfield developments. The £7.15 per share offer price is at a slight premium over other failed bids for Kulim’s stake in NBPOL of £6.50 and £7 per share; (6) the group had bought Sterling forward at the average rate of RM5.50 for the acquisition of NBPOL; (7) it sees the downstream business as the hidden jewel in NBPOL; and (8) the group plans to sit down with the authorities in PNG to discuss how their institutions could be a part of Sime. At the same time, it is currently looking to bring in strategic investors to reduce its shareholding in NBPOL.
What We Think
We are neutral on the key takeaways from the interview. Its plans to create value are well known and closely monitored by investors. Over the past five years, the group disposed non-core assets in the oil & gas and power sectors and redeployed the proceeds into core businesses through the acquisition of Bucyrus and NBPOL. This has been well received by investors.
What You Should Do
We maintain our Hold rating on the stock, which is supported by dividend yields and its assets valuations but lacks re-rating catalysts.
Source: CIMB Daybreak - 30 March 2015
Target RM9.07 (Stock Rating: HOLD)
In an interview with The Edge, Sime’s CEO spoke on the way he plans to create value for shareholders. He also reflected on the challenges facing the group and addressed the group’s plans for NBPOL following the recent takeover. We are overall neutral on the report and believe investors’ focus will be on Sime’s execution of its plans to create value from the NBPOL acquisition and the performances of its key divisions. We maintain our earnings forecasts, SOP-based target price and Hold rating due to the lack of near-term catalysts.
What Happened
In an interview with The Edge Weekly, Tan Sri Mohd Bakke Salleh, CEO of Sime Darby Group revealed the following: (1) Sime is always evaluating opportunities to create value for shareholders but is also mindful of implementing them at the right time. It plans to continue improving its operational efficiencies and pursue strategic portfolio growth through acquisitions, initial public offering and/or strategic alliances; (2) the group cannot comment on speculation pertaining to a possible merger with another PNB property arm; (3) he cited the weak commodity prices and identifying the right opportunities as the main challenges over the past five years; (4) the weaker Ringgit is not good for its auto business but this is partially offset by the group’s overseas revenue (50% of total revenue); (5) he believes that Sime paid a fair market price for New Britain Palm Oil (NBPOL), given the scarcity of suitable landbank, as well as the high costs and risks associated with greenfield developments. The £7.15 per share offer price is at a slight premium over other failed bids for Kulim’s stake in NBPOL of £6.50 and £7 per share; (6) the group had bought Sterling forward at the average rate of RM5.50 for the acquisition of NBPOL; (7) it sees the downstream business as the hidden jewel in NBPOL; and (8) the group plans to sit down with the authorities in PNG to discuss how their institutions could be a part of Sime. At the same time, it is currently looking to bring in strategic investors to reduce its shareholding in NBPOL.
What We Think
We are neutral on the key takeaways from the interview. Its plans to create value are well known and closely monitored by investors. Over the past five years, the group disposed non-core assets in the oil & gas and power sectors and redeployed the proceeds into core businesses through the acquisition of Bucyrus and NBPOL. This has been well received by investors.
What You Should Do
We maintain our Hold rating on the stock, which is supported by dividend yields and its assets valuations but lacks re-rating catalysts.
Source: CIMB Daybreak - 30 March 2015
