- Sime Darby is taking a major stake in San Diego-based biotechnology company Verdezyne – following an MoU signing ceremony in KL today that was witnessed by Prime Minister Datuk Seri Najib Razak and President Barack Obama.

- According to a Bloomberg report citing a White House statement, Verdezyne will receive a US$30mil (~RM100mil) investment from Sime Darby to co-develop a facility that will convert palm oil waste into industrial chemicals.

- Verdezyne is making good an earlier pledge to set up a manufacturing hub in Malaysia. It was awarded “BioNexus” status by Malaysia’s Biotech Corp during Najib’s visit to the US last September. Its first own commercial plant has an annual capacity in excess of 13,000 tonnes,

- In a statement, Sime Darby said it plans to emerge as the single largest investor in Verdezyne, along with existing investors BP Alternative Energy, Royal DSM, OVP Venture Partners and Monitor Ventures, subject to definitive documentation.

- It said Verdezyne’s current products targeted for commercialisation have a potential combined market size of ~ RM37bil. Verdezyne has secured a commercial relationship with multi-polymer fibre producer Universal Fiber Systems, LLC to supply its bio-based adipic acid and is actively pursuing opportunities with other international chemical companies.

- While positive for Sime Darby, we do not expect any near or medium term impact on its plantation division. Plantation remains as the single largest earnings contributor, accounting for ~42% of group EBIT for FY13 and 1HFY14.

- Plantation EBIT fell 36% YoY to RM752mil in 1HFY14, on the back of a 14% decline in FFB production. The segment’s results in 2HFY14 are expected to improve given the rise in CPO prices over the last few months.

- The plantation division is now embroiled in a controversy following South Africa Competition Commission’s probe into the group and Unilever SA for alleged collusion in price fixing of edible oils and margarine in contravention of the country’s Competition Act. Both groups have said they were cooperating fully with the authorities in the investigation.

- We maintain our BUY call for Sime Darby, with a fair value of RM11.20/share – a 10% discount to our SOP value of RM12.44/share. 

Source: AmeSecurities