- Sime Darby’s subsidiary Sime Darby China Oils and Fats Co Ltd is selling a 55% stake in Rizhao Sime Darby Oils and Fats Co Ltd (RSDOF) for RMB85.25mil (~RM45.2mi).

- The buyer is private company Shandong Wanbao Agricultural Co Ltd.

- RSDOF’s principal activities are the refining, storage and marketing of palm oil related products.

- RSDOF has an edible oil bulking facility in Rizhao, Shandong Province. The facility is located in a prime industrial area which is near the Rizhao Port.

- Shandong Wanbao sells agricultural products including palm oil. It is expected to complement RSDOF’s future business direction in the edible oils market and storage facilities.

- Sime Darby said the proposed transaction offers a good opportunity for Sime Darby to improve its commercial capabilities and viability in other edible oils in China.

- The transaction is expected to be completed within six months. The transaction will not have any material effect on the group’s earnings or net assets for the financial year ending 30 June 2015.

- Accordingly, RSDOF will be classified as an associate company and cease to be an indirect wholly-owned subsidiary of Sime Darby.

- We are neutral on this relatively small transaction, and maintain our BUY call on Sime Darby with a fair value of RM10.58/share – based on a 15% discount to our SOP value of RM12.45/share.

- We see Sime Darby as a proxy to any upward trend in CPO prices. Another catalyst in the pipeline is the proposed listing of its auto division, which could occur early in the second half of CY15.

Source: AmeSecurities