- Sime Darby has entered into a JV with Weifang Port Co Ltd (WFP) and Shandong Hi-speed Transport & Logistics Investment Co Ltd (SHTLI) for the construction, management and maintenance of a sea channel, anchorage and other port infrastructure in the Weifang Central Port region.

- Pursuant to a shareholders’ agreement inked on 6 March 2014, Sime Darby’s 99%-owned subsidiary Weifang Sime Darby Port Co Ltd (WFSDP) will hold a 37% stake in the JV company, Weifang Port Services Co Ltd. WFP and SHTLI will hold 38% and 25%, respectively.

- The JV company will have a total registered capital of RMB1bil (RM536mil), out of which Sime Darby’s portion amounts to RM198.3mil. The contributions are to be made in three tranches: 1) 20% by 15 March 2014; 2) 60% by 30 September 2014, whereby WFSDP will contribute in kind via a 10,000-tonne class sea channel and wave breaker, which has been built; and 3) the remaining 20% by 30 June 2015.

- Sime Darby says the proposed JV would separate the responsibilities of the public infrastructure development from the commercial profit-driven operations, and will spur the development of Weifang Port.

- Sime Darby operates ports at Weifang and Jining in Northeast China’s Shandong province. WFSDP is investing RM1.4bil to expand Weifang Port. It is targeting to Increase throughput from 18mil MT to >50mil MT, as well as the capacity from 22mil MT to 100mil MT by FY16.

- We are neutral on the latest development. The port operations are under the Energy & Utilities division, which posted an est. EBIT of RM105mil in 1HFY14 (-16% YoY), accounting for ~5.9% of the group’s total EBIT of RM1.79bil (-25% YoY) and representing ~42% of our operating profit forecast for the division.

- Sime Darby recently posted a 1HFY14 core net profit of RM1,272.4mil (-25% YoY), which was below expectations, accounting for 35% of consensus forecasts.

- Nonetheless, we maintain our BUY call for Sime Darby, with a fair value of RM11.20/share – a 10% discount to our SOP value of RM12.45/share. It remains as a prime beneficiary of the surging CPO prices.

Source: AmeSecurities