Sime Darby Plantation is disposing of 949 acres of freehold land in Kapar, Klang to Sime Darby Property for RM618m or almost RM15 psf. The deal is in pursuant to one of the nine call option agreements entered into between both companies in 2017 amid the demerger exercise. Upon the completion of the SPA, the Group is expected to recognize one-off gain of RM602.2m in the next three months and the proceeds will be utilized for working capital purpose. We make no changes to our earnings projection pending the completion of the deal. Maintain Neutral with an unchanged TP of RM4.60 based on 18x FY23 EPS.

• Salient details of the proposed disposal. The Group has entered into a Sale and Purchase Agreement (SPA) for the disposal of three parcels of freehold agricultural land with a total net land area of 948.826 acres in Kapar, Klang for a cash consideration of RM618m. The net book value of the Kapar land stood at RM11.8m as of 31st Dec 2021. As announced on 30th Aug 2022, the Group received a notice from the Sime Darby Property to exercise the call option agreement. The proposed disposal is expected to be completed in the 2Q 2023.

• Part of the nine call option agreements. The related party transaction is in pursuant to one of the nine call option agreements entered into between both companies in 2017, when Sime Darby embarked on a “pure-play” exercise, which involved the creation of stand-alone listed entities in plantation, property, trading and logistics sectors.

• Turning into industrial township. According to Sime Darby Property, the land would be developed into an integrated sustainable industrial township with an estimated GDV of RM5bn-RM6bn given the strategic location and sizeable net land area. The first phase of the proposed development is expected to be launched in 2024 and will be structured as a phased development over a period of 10 to 15 years.

• Strengthening balance sheet position. Upon the completion of the land disposal, the Group’s coffer will increase by 66% to RM1.55bn while net gearing will improve from 0.29x to 0.26x.

Source: PublicInvest Research - 2 Dec 2022