C O M P A N Y U P D A T E Friday, September 29, 2017 FBMKLCI: 1,758.06 Sector: Plantation THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* Sime Darby Berhad TP: RM9.80 (+8.8%) Demerger Is a Smart Move? Last Traded: RM9.01 HOLD Angeline Chin Tel: +603-2167 9611 angelinechin@ta.com.my www.taonline.com.my Sime Darby held an Analysts Briefing yesterday regarding the separate listing of Sime Darby Plantation and Sime Darby Property. Besides, management also shared the details on the timeline progress and the business overview on the respective listed entities post-demerger. Note that Sime Darby s share price has corrected by 7% from its peak of RM9.70 in June. Overall, we believe investors are still trying to ascertain whether the demerger of the three pure plays will be a financial success since the listed entities will be executed by the respective management team. Maintain HOLD on Sime Darby with an unchanged target price of RM9.80/share. Key Highlights: Listings Are Progressing Well The listings of the Sime Darby Plantation (SD Plantation) and Sime Darby Property (SD Property) are progressing on schedule and the relevant applications for proposed listing have been submitted to the Securities Commission and pending approvals by authorities. Meanwhile, the Extraordinary General Meeting (EGM) will be held in November (refer to figure 1). Besides, since the proposed listing would not entail any fund raising by Sime Darby, SD Plantation and SD Property, the share split price will be determined based on normal share trading following the demerger implementation. Nonetheless, management guided that the discussion on the reference price is still on-going with Bursa Malaysia. The listings are expected to be completed in Nov/Dec this year. Sime Darby Berhad The new Sime Darby Berhad (SDB) will remain listed with motor, industrial, logistics and other business (healthcare, insurance, retail and other investments) divisions under its umbrella. Going forward, SDB will focus on cost structure optimization, exploring new markets and new brands as well as strategic M&A or JV. Sime Darby Property The property development division currently owns 16,938 acres of land with a total estimated remaining GDV of RM101.1bn, which are located mainly at strategic locations around Klang Valley, Negeri Sembilan and Johor. SD Property has 23 active townships and development horizon of up to 2040. Management hopes to grow the rental recurring income to 10% of SD Property s operating profits by FY22. According to management, the Malaysian Vision Valley (MVV) will drive its earnings up till 2045. The total development area will be 379k acres and will help to boost its Nilai Impian and Bandar Ainsdale developments. Unbilled sales stood at RM1.67bn as at 30 June 2017 (+28% YoY). Share Information Bloomberg Code SIME MK Stock Code 4197 Listing Main Market Share Cap (mn) 6800.8 Market Cap (RMmn) 61,275.6 52-wk Hi/Lo (RM) 9.70/7.59 12-mth Avg Daily Vol ('000 shrs) 8017.0 Estimated Free Float (%) 28.3861994 Beta 1.49 Major Shareholders (%) Skim Amanah Saham Bumiputera - 40.87 EPF - 11.11 PNB - 6.15 KWAP - 5.77 LTH - 2.42 Forecast Revision FY18 FY19 Forecast Revision (%) 0 0 Net profit (RMmn) 2539 2642 Consensus 2492 2703 TA's / Consensus (%) 101.9 97.7 Previous Rating Hold (Maintain) Financial Indicators FY18 FY19 Net debt/equity (%) 2.4 3.9 CFPS (sen) 89.9 (15.7) P/CFPS (x) 10.0 nm ROA (%) 3.6 3.5 NTA/Share (RM) 5.4 5.6 Price/ NTA (x) 1.7 1.6 Share Performance (%) Price Change SIME FBM KLCI 1 mth 0.1 (0.2) 3 mth (5.9) (0.8) 6 mth (4.1) 0.4 12 mth 16.0 5.3 (12-Mth) Share Price relative to the FBMKLCI Source: Bloomberg Page 1 of 5
Sime Darby Plantation Current palm oil planted area stood at circa 600k ha with an average palm tree age of 12.9 years. Management hopes to increase the FFB yield to 25 tonnes/ha (from19. 4 tonnes/ha) and OER of 25% (from 21.3%) by 2025. Besides, they also set a higher PBIT contribution of 20% from its downstream business. Replanting program will accelerate from an average of 4% - 5% to 5% - 7%. About 45% of its planted area is aged above 19 years. Management expects the replanting program will help to improve its average palm age of 10 years by 2025. The replanting cost is about RM18k/ha and the capex allocation for the replanting cost is up to RM800mn. Dividend Policy SD Plantation : Payout ratio of not less than 50% of its profit SD Property : Payout ratio of not less than 20% of its profit New SDB : Under review (previously not less than 50% of its profit) Valuation We make no changes to our earnings forecast. Maintain Sime Darby s TP at RM9.80, based on SOP valuation. The TP translates into CY18 implied PER of 26x, which is higher than its 5-year average rolling forward PER of 24x. We believe the higher PE multiple will be supported by its recent effort to reduce gearing through disposing of non-strategic assets and to unlock value via monetization. Maintain HOLD. Figure 1 : Sime Darby s SOP table Segments Target PER (x) Segment value (RMmn) Remarks Plantation 24 35,125 Target PER Property 20,205 30% discount to RNAV E&U 10 1,128 Sector target PER Industrial 10 3,517 Assumed target PER Motor vehicle 14 5,728 Sector average PER Other assets 1,307 BV E&O 236 Market value Healthcare 597 Investment cost Net debts (holding co.) (1,184) Equity value 66,659 Enlarged share capital (mn) 6,801 SOP/share (RM) 9.80 Implied CY18 PER of 26x Page 2 of 5
Figure 2 : Timeline of the Listing of Pure Plays Figure 3: New Sime Darby Berhad Management Team Page 3 of 5
Figure 4 : Sime Darby Property Management Team Figure 5: Sime Darby Plantation Management Team Page 4 of 5
Earnings Summary Stock Recommendation Guideline BUY : Total return within the next 12 months exceeds required rate of return by 5%-point. HOLD : Total return within the next 12 months exceeds required rate of return by between 0-5%-point. SELL : Total return is lower than the required rate of return. Not Rated: The company is not under coverage. The report is for information only. Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months. Gross dividend is excluded from total return if dividend discount model valuation is used to avoid double counting. Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium. Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. As of Friday, September 29, 2017, the analyst, Angeline Chin, who prepared this report, has interest in the following securities covered in this report: (a) nil Kaladher Govindan Head of Research TA SECURITIES HOLDINGS BERHAD (14948-M) A Participating Organisation of Bursa Malaysia Securities Berhad Menara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 2072 1277 Fax: 603 2031 6608 www.ta.com.my Page 5 of 5