• Sime Darby Plantation (SDP) and PTTGC International Ltd have proposed to divest their 100% equity interest in the Asia Pacific business of Emery Oleochemicals and Emery Specialty Chemicals (Emery Group) to Edenor Technology Sdn Bhd for a targeted equity value of RM38.0mil.

• The consideration of RM38.0mil was derived based on the enterprise value of RM243.0mil less the targeted net debt of RM205.0mil.

• The final consideration will be adjusted based on the net working capital and net debt positions of the two Emery units.

• Emery Group’s Europe and North America businesses will still be held by SDP and PTT GC on a 50/50 basis.

• Edenor Technology is a 50/50 joint venture between Mega First Corporation and 9M Technologies.

• We view the proposed disposal positively as Emery has not been performing well. SDP’s share of net loss in Emery was RM30mil in 1HFY21. We do not know how much of the losses were attributed to the Asia Pacific region.

• Emery Group is involved mainly in the production and sale of fatty acids, fatty alcohol and other oleochemical products.

• In FY20, SDP impaired its investment in Emery Group by RM236.0mil. As at 31 December 2020, the carrying amount of the Emery Group was estimated to be RM157.9mil.

• We maintain BUY on SDP with a fair value of RM4.88/share.

Source: AmInvest Research - 20 Aug 2021