Friday 8 June 2012

Sime Darby - OUTPERFORM -08 June 2012


News   Sime Darby (SIME) and SP Setia (MP; TP: RM3.90) have issued a joint press release to reveal that their joint bid have been identified as the preferred bidder for the regeneration project of Battersea Power Station in London, UK by the Joint Administrators and Receivers (JAR), Alan Bloom and Alan Hudson of Ernst & Young LLP, which are acting on behalf of the owners of the Property. Both SIME and SP Setia have entered into an Exclusivity Agreement with the JAR to acquire the site for GBP400m (RM2.0b) and has up to 28 days to conduct further due diligence and investigations. The Advisor for SP Setia and SIME is RREEF, Deutsche Bank’s real estate arm.

Comments   We are NEUTRAL on the news pending more details from the management. However, our property analyst thinks that the London property market is extremely attractive as capital values are near, if not at trough levels.

 Further details (e.g. JV structure between SP Setia and Sime Darby, development details, etc) will only be provided after the 28 days. There was no information on the project GDV in the announcement. However, it was quoted in Starbiz that the GDV will reach RM40b.

Outlook   We are still positive on the overall outlook for SIME as we look forward to a decent 7% FFB growth in FY13E.

 The industrial division should support the group’s earnings growth too after registering an EBIT growth of 41% YoY to RM966m in 9M12.
  
Forecast  Maintaining our FY12-13E net profits of RM4.22bRM4.38b for now pending further details on the project.

Rating   Maintain OUTPERFORM
 The valuation of 13.0x FY13E PER is attractive as compared to IOI (15.5x) and KLK (17.0x). We think the current discount above is unjustified given its status as the biggest market cap planter with superior liquidity.

Valuation   Maintaining Target Price of RM10.80. Our valuation is based on Sum-Of-Parts with the Plantation division valued at 17.5x Fwd PER.

Risks   A sustained decline in CPO prices.

Source: Kenanga

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