Sime Darby - Sime Darby GO for NBPOL on the pricey side at FY15F PE of 22x BUY, 9 Oct 2014

Amended & Updated

Sime Darby’s cash offer of GBP7.15/share under a GO for New Britain Palm Oil Ltd (NPBOL) for a total of RM5.6bil values the latter at 22x PE FY15F earnings based on Bloomberg estimates (Note: our previous report inadvertently stated the forward valuation at 15x PE).

The offer also values the group at an EV/ha of RM84,000 (planted area of ~80,000ha), which is 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. Sime Darby itself is currently trading at only 14x FY15F earnings. The value propositions ahead would depend largely on what synergies and additional benefits Sime Darby could derive from it.

The key takeaways from an analyst briefing are:-

1. The proposal has obtained the blessings of the PNG government, with its Prime Minister personally acknowledging in a letter to Sime Darby last week that the latter’s entry would not be against national interest.

2.  The PNG government has indicated that it would want to increase its current 18% stake to 30%. Management said an option for this would a share issuance in exchange for additional land for oil palm development.

3. Sime Darby intends to bring NBPOL’s listing from London to Kuala Lumpur or Singapore.

4. The valuation has to be attractive enough to obtain an at least 51% stake in NBPOL (a condition of the offer) and thereby ensuring that Sime Darby will able to assume control over management and the board.

5.  The EV/ha of RM84,000ha excludes two refineries, as well as sugar cane plantation (7,718ha) and pasture land (9,282ha) with 20,000 cattle heads. NBPOL potentially has another 28,000ha of land for oil palm cultivation.

We maintain our call and numbers for now.

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