AmWatch - Sime Darby : Premium for NBPOL to offset benefits from auto listing BUY, 10 Oct 2014

STOCK FOCUS OF THE DAY

Sime Darby : Premium for NBPOL to offset benefits from auto listing      BUY

We maintain BUY on Sime Darby, but with a lower fair value of RM10.58/share – based on a higher discount of 15% (vs. 10% previously) to our SOP value of RM12.45/share. Sime Darby is offering GBP7.15 cash per share under a GO for New Britain Palm Oil Ltd (NPBOL) for a total of RM5.6bil. This values it at a pricey 22x PE FY15F earnings based on Bloomberg estimates and at an EV/ha of RM84,000, which is nonetheless comparable to recent transactions in Malaysia. We are negative on the proposal as valuation is at the upper range and would be value dilutive to the group. The value propositions ahead would depend largely on what synergies and additional benefits Sime Darby could derive from it.

The key takeaways from a briefing yesterday are:- (1) the proposal has obtained the blessings of the PNG government; (2)  the PNG government has indicated that it would want to increase its current ~18% stake to 30%; (3) Sime Darby intends to bring NBPOL’s listing from London to Kuala Lumpur or Singapore. Given the high valuation for the GO, we do not believe this could occur within the next three years; (4) the GO offer price had to be attractive enough to obtain an at least 51% stake in NBPOL; (5)  Sime Darby would fund 80% of the GO via borrowings the rest via internal funds. Assuming an 80% acceptance rate, Sime Darby would need to borrow at least RM3.6bil – raising its gross and net gearing to over 0.55x and 0.4x, respectively, from 0.38x and 0.2x as at end-FY14.

Management said proceeds from an IPO exercise within the year would be used to pare down gearing.  With that, it could potential do back down to 0.4x. Broadly, we would now deem any unlocking of value from the potential listing of the auto division to be offset by the premium for NBPOL.

Others :

Kulim : Sime makes cash offer for NBPOL              BUY

Sarawak Cable : Wins RM493mil Balingian job      HOLD

CIMB Group : A much lower-than-anticipated takeover P/BV of 1.7x       HOLD

QUICK TAKE

Rubber Gloves : Ebola: Spreads in Spain, US patient dies               NEUTRAL

NEWS HIGHLIGHTS

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