• Sime Darby Plantation (SDP) has proposed to sell 949 acres of land in Kapar, Klang to Sime Darby Property for RM618mil.

• We view this development positively as SDP would be able to unlock and monetise the value of the land in Kapar.

• SDP will be recording a one-off net gain of RM546mil on the disposal of the land. This will be recognised in FY23F as the proposed disposal will only be completed in 2QFY23. Operationally, there is minimal loss in FFB production as the land is only 384ha compared to SDP’s planted areas of 580,718ha.

• The proposed consideration of RM1.6mil per ha is fair as it accounts for the land’s property development potential. Market price of brownfield palm oil land ranges from RM70,000 to RM100,000/ha. Also based on past market transactions, oil palm estates sold for the development of solar farms were valued between RM500,000/ha and RM1mil per ha.

• SDP said that it will be using the disposal proceeds of RM618mil as working capital. We estimate that the group’s net gearing will decline to 39% in FY23F from 49% in FY22E.

• We maintain SELL on SDP with a fair value of RM3.65/share. SDP is currently trading at a FY23F PE of 18x, which is higher than its 2-year average of 17x.

Source: AmInvest Research - 2 Dec 2022