- We reaffirm our BUY rating on Sime Darby, with our fair
value unchanged at RM12.10/share, a 10% discount to its sum-ofparts value of
RM13.40/share. Following our recent site visit, we are more positive on Sime’s
acquisition of the Battersea Power Station (BPS). We put forth the reasons
behind this and other key highlights of the visit:
- 1. The site is a natural extension to the affluent Chelsea/Fulham
locality where the demand for housing has always been strong. Evident to this
fact is that, other developers within Nine Elms Regeneration Area (NERA) have enjoyed
decent sales rates (50%-60%) with an ASP of GBP1,000psf-GBP1,200psf. It is
located just a mere 5-8 minutes and
10-15 minutes away from shopping districts of Knightsbridge and Oxford Street,
respectively.
- 2. The re-development of BPS is spearheaded by an experienced
management team which had previously been actively involved in the acquisition
and planning of the BPS; and hence, should provide a sound platform for a smooth
undertaking of this massive scheme. As a whole, theappointment of this team
would allay fears over the absence of a local partner for the consortium.
- 3. While there is a firm commitment by all parties for a
proper transport solution extension to the Northern Line (NLE) underground
network – expected to be ready by 2016/2017 – we are pleased that the
contribution by the consortium for NLE works will be capped at GBP203mil
(RM1bil) and split over several phases
of the development.
- 4. We understand the consortium would have to fork out in excess
of GBP60mil for the restoration works of the power station, which includes
GBP11mil-GBP12mil for ‘new’ chimneys and GBP50mil for the building itself. On
top of that, as part of Section 106 requirement, it will have to make contributions
for other infrastructure and services amounting to GBP25mil. While the amount
appears substantial at circa GBP80mil-GBP90mil (RM400mil-RM450mil), the
refurbishment and contributions will be done in phases that will lessen any strains
cashflow.
- Recall that the consortium’s initial outlay would be circa
GBP600mil (RM3bil), which includes the land and initial infra costs. No changes
would be made to our estimates given that contributions from Phase 1 will only
filter through in 2017.
- Sime is currently trading at a 27% discount to our SOP
value of RM13.40/share and a FY13F PE multiple of 13x. We expect valuations to
move up as we believe CPO prices will continue to recover, underpinned by the
large price discount to soybean oil and tight global supply of vegetable
oils.
Source: AmeSecurities
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