- Sime Darby has aborted its plan to acquire a 49% stake in New Britain Palm Oil Ltd (NBPOL) from Kulim (M) Bhd after holding exclusive talks with the latter.

- In a statement, Sime Darby said it had decided at this time not to proceed further in relation to the proposal following the expiry of the exclusivity period. No detail was given.

- We believe the stumbling blocks could have to do with pricing and questions over Sime Darby’s ability to exert control over NBPOL, which is now largely independently managed apart from Kulim.

- We are neutral over this latest development. At the current price of GBP4.175/share, NBPOL is trading at a PE of 16x the consensus FY14F EPS of GBP0.26/share (Source: Bloomberg).

- At a premium of between 30% and 50% over the current price (GBP5.40-GBP6.30/share), NBPOL would be valued at 21x and 24x its FY14F EPS – which is on the steep side.

- This would have translated into a purchase price of between RM4.3bil and RM5.0bil for Sime Darby to assume full control of NBPOL.

- It had been speculated that the transaction may not have obtained the nod from other stakeholders if the price was below GDP6.00/share.

- Sime Darby’s plantation growth prospects still rest significantly on its Liberian operations, which have come to a halt due to the Ebola outbreak.

- Nonetheless, we believe the long-term prospects remain intact, and the stock will benefit from any upticks in CPO prices. Other catalysts include the potential listing of its auto division.

- 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