- Sime Darby has emerged as the sole potential buyer of Kulim (M) Bhd’s stake in UK-listed New Britain Palm Oil Ltd (NPBOL).

- Sime Darby yesterday announced that Kulim had picked it as the preferred party to negotiate the sale of the former’s entire stake in NBPOL.

- The parties have entered into exclusive discussions to finalise the terms of the deal. No indicative pricing has been given as yet.

- NBPOL is 48.97% owned by Kulim, while the West New Britain Provincial Government is the second largest shareholder with 8%.

- This is positive for Sime Darby, which would gain 77,000ha of oil palm plantations in PNG and the Solomon Islands, 12 palm oil mills, and one refinery each in PNG and Liverpool. The plantation size is ~9% of Sime Darby’s total landbank of ~860,000ha and ~14% of its total planted area of ~542,000ha.

- NBPOL is also the largest domestic sugar and beef producer in PNG, with 7,700ha of sugar cane plantations and 9,200ha of grazing pastures. It owns a seed production and palm breeding facility, according to previous reports.

- We maintain our numbers for now, pending finalisation of the transaction, which would likely lead to an MGO in NBPOL.

- NBPOL was traded at £5.18/share (~RM28.00/share), translating into a market cap of £778mil (RM4.2bil), and at 19x PE on FY14F estimates, according to Bloomberg consensus.

- Kulim had last year failed to raise its stake in NBPOL by an intended 20%, to 68.97% via a partial GO at £5.50/share. The Securities Commission of PNG had imposed a restraining order against the move that it had viewed as against “national interest”.

- NBPOL’s management had also opposed the deal, while the independent adviser reportedly said the fair value was estimated at between £6.50-£7/share.

- We maintain BUY on Sime Darby, with a fair value of RM11.20/share – a 10% discount to our SOP value of RM12.45/share.

Source: AmeSecurities