· We maintain Buy on Sime Darby, with an unchanged fair value of RM10.58/share –based on a 15% discount to our SOP value of RM12.45/share.

· Sime Darby yesterday announced the completion of its acquisition of New Britain Palm Oil Ltd (NBPOL), adding another 135,00ha and bringing the its total landbank to ~1mil ha.

· We are neutral on the completion of the takeover. At best, given the steep acquisition price (of 22x PE then), NBPOL will add to Sime Darby’s plantation size and scale but not to its value.

· But for the pricy valuations, we had earlier acknowledged that the acquisition presented a narrowing and rare opportunity to acquire fully productive plantation lands. Additionally, the acquisition process is positive in the sense that there was no a protracted and costly delay.

· As of now, we believe its key challenges to creating value ahead include effective cost controls amid lower-than-expected CPO prices, finding the right synergies for the downstream operations in UK and Europe, and ensuring the right prices for additional landbank that could be found in PNG.

· Sime Darby says it will focus on integrating the operations of Sime Darby Plantations Sdn Bhd and NBPOL over the next few months. NBPOL’s Liverpool refinery complements Sime Darby Plantation’s refinery in the Netherlands.

· Based on earlier Bloomberg consensus estimates, NBPOL’s earnings could contribute ~7%-8% to the group’s fully consolidated bottom line. Fully accounted at the acquisition consideration of RM5.6bil, NBPOL would represent ~7% of our SOP value for the enlarged group.

· The catalysts continue to be the impending listing of its auto division (which is tentatively scheduled for 2H15) and CPO prices trending upwards. We maintain our numbers for now.

Source: AmeSecurities