- Sime Darby has entered into a collaboration with 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 its facility in Malaysia. The biotechnology company was awarded “BioNexus” status by Malaysian Biotechnology Corporation (Biotech Corp) during Najib’s visit to San Francisco last September.

- BioNexus status is for companies undertaking value-added biotechnology and/or life sciences activities in Malaysia, and comes with tax incentives and grants.

- While positive for Sime Darby, we do not expect any near or medium term impact on its palm oil business.

- Sime Darby expects FFB production growth to decline marginally in FY14F, stemming from the negative impact of unfavourable weather in Malaysia and Indonesia.

- Its palm oil division is currently 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.

- The plantation segment remains as the single largest earnings contributor, accounting for ~42% of group EBIT for FY13 and 1HFY14, while the other divisions, particularly in industrials gain in importance.

- 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.

- 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