• Sime Darby Plantation’s subsidiary, New Britain Palm Oil Ltd (NBPOL) has acquired a company which owns two oil palm estates and two copra factories in Papua New Guinea (PNG).

• The acquisition cost comprised US$52.6mil (RM215.6mil) cash and assumption of borrowings of US$11.0mil (RM45.1mil). This means that total purchase consideration came up to RM260.7mil.

• There were no details on the earnings or age profile of the two oil palm estates in PNG.

• The two oil palm estates have planted areas of 4,018ha. Total plantable areas are 5,713ha. Total landbank is about 6,110ha. The two copra mills have processing capacity of 55,000 tonnes per year in PNG. The company, which has been acquired by NBPOL, is the largest coconut oil exporter in the country.

• Excluding the copra processing mills and based on the planted areas of 4,018ha and assumption of US$11mil borrowings, we estimate that NBPOL is acquiring the oil palm estates at a price of RM64,883/ha.

• We believe that the purchase consideration is fair. Market price of prime oil palm estates in Sabah ranges from RM70,000/ha to RM80,000/ha currently. Also back in 2014, Sime Darby Bhd paid about RM84,200/ha to acquire NBPOL.

• As the size of the two oil palm estates in PNG which have been acquired by NBPOL is small, we do not expect their earnings contribution to be significant. In the long term however, the acquisition is positive as it would increase Sime Darby Plantation’s landbank in PNG and exposure to the coconut oil processing business.

• Sime Darby Plantation has planted areas of 602,452ha in total currently. Out of these, about 14.4% or 86,493ha are located in PNG while another 50.4% or 303,367ha are in Malaysia. An additional 33.6% or 202,191ha are located in Indonesia. The balance 1.7% or 10,401ha of the planted areas are in Liberia.

• Maintain HOLD on Sime Darby Plantation with a fair value of RM5.20/share.

Source: AmInvest Research - 24 Aug 2018