• Sime Darby Plantation (SD Plantation) and Sime Darby Property (SD Property) have made revisions in respect to the landbank under the call option agreements executed in August 2017. The call option agreement was signed during the demerger exercise of the Sime Darby Group.

• Under the call option, Sime Darby Property has the option to purchase nine parcels of land from Sime Darby Plantation at market values. The tenure of the call option is 60 months (five years) from 30 November 2017 with the option for an extension of another 36 months.

• Under the revised agreement, the size of Kulai A Estate will be reduced to 915 acres from 1,862 acres. There will also be a reduction in size and substitution to 1,350 acres in East Estate, Carey Island from 2,000 acres in West Estate, Carey Island.

• Kulai B Estate will be replaced with Bukit Cheraka Estate (2,540 acres) while Byram Estate will be substituted with Bukit Kerayong Estate (1,077 acres). Also, Bukit Selarong Estate will be replaced with Jalan Acob Estate (2,177 acres).

• In hectares, the size of all the above landbank amount to about 3,261ha. Currently, Sime Darby Plantation has a total planted area of 603,147ha.

• Sime Darby Plantation said that the new landbank in the call option are deemed non-pure plantation land as they are on the fringe of developed areas. Also, the potential disposal of the landbank which are located in areas prime for property development would help unlock the value of the landbank.

• We are neutral on this development. We believe that the loss of earnings from the potential sale of the land to Sime Darby Property is minimal.

• However, the one-off gain on the disposal of the landbank could be sizeable as the net book value of the landbank is low. We reckon that Sime Darby Plantation would use the disposal proceeds for working capital or to reduce borrowings. Sime Darby Property has until year 2022 to exercise the call option.

• Maintain UNDERWEIGHT on Sime Darby Plantation with a fair value of RM4.30/share.

Source: AmInvest Research - 18 Jun 2019