AmWatch - Sime Darby : Unlocking property value via PNB? Buy, 28 Apr 2014

STOCK FOCUS OF THE DAY

Sime Darby : Unlocking property value via PNB?                BUY

We maintain our BUY call for Sime Darby, with a fair value of RM11.20/share – a 10% discount to our SOP value of RM12.44/share. StarBiz Week reported that Permodalan Nasional Bhd (PNB) is looking at merging three of its biggest property companies – Sime Darby Property, S P Setia, and Island & Peninsular Sdn Bhd. Sime Darby officials have alluded to the possibility of spinning off the various divisions. We believe this speculated move to merge with other PNB companies to be a real and distinct possibility given the common major shareholder and the need to unlock value of Sime Darby’s landbank. Despite its huge landbank, property accounted for 11% of Sime Darby group’s EBIT in FY13 and only 7% for IHFY14. The group is targeting a PBIT of RM1bil by FY16 for the property division, mainly driven by the recognition of the Battersea project. We currently value Sime Darby’s property division at ~RM23bil, representing a 10% discount to the RNAV. The property segment makes up 31% of our SOP value for the group. Sime Darby currently faces external challenges in the industrial and motor divisions, while the palm oil division awaits growth to set in for its Liberia plantations. We maintain our numbers.

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