SIME (4197) - Sime Darby Bhd - Will only float units if adds value
Target RM9.07 (Stock Rating: HOLD)
During its large group session at Invest Malaysia, Sime Darby revealed that it will only list its motor division if it creates value for the group. It revealed that the listing of its motor division, which was initially planned for the middle of this year, has been deferred to 2HCY15. The group also revealed that the recent revision in Fitch’s rating for the group to negative from stable has not affected the group’s cost of borrowings of around 4%. We retain our Hold rating, SOP target price of RM9.07 and earnings forecasts. The stock appears fairly valued at current levels and lacks near-term catalysts.
What Happened
Around 90-100 investors attended Sime Darby's large group session at Invest Malaysia 2015 today. Mr Alan Hamzah, Executive VP - Group Strategy and Innovation made a comprehensive presentation on the group's businesses, its key strengths, challenges and growth strategy. He highlighted that the group’s key strengths as a conglomerate lie in: (1) its ability to achieve steady earnings through diversification; (2) its lower cost of capital; (3) its ability to extract business synergies; and (4) its ability to benefit from functional and operational best practices of the corporate centre and the sharing of resources. He also stressed that Sime Darby will only pursue the listing of its motor division if it creates value for the group. The group also mentioned that it has deferred the plan for the motor division IPO to 2HCY15. Sime Darby is budgeting capex of RM3.7bn (excluding the acquisition of NBPOL) for FY15. It is allocating around 46% of its budgeted capex to the plantation sector, 16% to the industrial division, while the motor and energy & utilities divisions were allocated 15% each of total capex.
What We Think
We are positive on the group’s indication that it will only list the motor division and other key business units of the group if it enhances the shareholders’ value. We believe Sime Darby can afford to wait for better timing to list its business units, as it is still comfortable with its current gearing ratio. The group recently bought 100% of New Britain Palm Oil (NBPOL) for RM5.6bn and is currently looking to consolidate and extract synergies from the businesses with its own. The long-term prospects for NBPOL are good but it faces short-term headwinds in the form of lower CPO selling prices. We gathered that NBPOL posted pretax profit of US$100m in FY14.
What You Should Do
We maintain our Hold rating as the stock appears fairly valued at current levels and lacks near-term catalysts.
Source: CIMB Daybreak - 24 April 2015
Target RM9.07 (Stock Rating: HOLD)
During its large group session at Invest Malaysia, Sime Darby revealed that it will only list its motor division if it creates value for the group. It revealed that the listing of its motor division, which was initially planned for the middle of this year, has been deferred to 2HCY15. The group also revealed that the recent revision in Fitch’s rating for the group to negative from stable has not affected the group’s cost of borrowings of around 4%. We retain our Hold rating, SOP target price of RM9.07 and earnings forecasts. The stock appears fairly valued at current levels and lacks near-term catalysts.
What Happened
Around 90-100 investors attended Sime Darby's large group session at Invest Malaysia 2015 today. Mr Alan Hamzah, Executive VP - Group Strategy and Innovation made a comprehensive presentation on the group's businesses, its key strengths, challenges and growth strategy. He highlighted that the group’s key strengths as a conglomerate lie in: (1) its ability to achieve steady earnings through diversification; (2) its lower cost of capital; (3) its ability to extract business synergies; and (4) its ability to benefit from functional and operational best practices of the corporate centre and the sharing of resources. He also stressed that Sime Darby will only pursue the listing of its motor division if it creates value for the group. The group also mentioned that it has deferred the plan for the motor division IPO to 2HCY15. Sime Darby is budgeting capex of RM3.7bn (excluding the acquisition of NBPOL) for FY15. It is allocating around 46% of its budgeted capex to the plantation sector, 16% to the industrial division, while the motor and energy & utilities divisions were allocated 15% each of total capex.
What We Think
We are positive on the group’s indication that it will only list the motor division and other key business units of the group if it enhances the shareholders’ value. We believe Sime Darby can afford to wait for better timing to list its business units, as it is still comfortable with its current gearing ratio. The group recently bought 100% of New Britain Palm Oil (NBPOL) for RM5.6bn and is currently looking to consolidate and extract synergies from the businesses with its own. The long-term prospects for NBPOL are good but it faces short-term headwinds in the form of lower CPO selling prices. We gathered that NBPOL posted pretax profit of US$100m in FY14.
What You Should Do
We maintain our Hold rating as the stock appears fairly valued at current levels and lacks near-term catalysts.
Source: CIMB Daybreak - 24 April 2015
