- 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.

- We have tweaked downwards our FY15F-FY17F earnings forecasts by 11%-26%, to account for the 1HFY15 results. We have incorporated the completion of the takeover of New Britain Palm Oil Ltd recently (~4 months’ contribution for FY15F).

- Speculation has again resurfaced that Sime Darby may buy over Permodalan Nasional Bhd’s (PNB) 51.12% stake in S P Setia, with the latest report in The Edge Malaysia. Such a move will trigger an MGO.

- In the absence of details, any proposed merger may be too early an exercise for Sime Darby following the recent completion of its acquisition of NBPOL, in terms of management focus and capital requirements.

- A rights issue, being speculated as a possibility, to fund an acquisition may not be palatable amid the downturn in most segments and no indications of a significant turnaround in the medium term. Any deal must not be seen as tilting the advantage to S P Setia.

- Questions that could arise for Sime Darby: Does it need more land for development? Can Sime Darby make a difference in S P Setia?

- A positive consequence is this (if not the primary motivation): Sime Darby will be able to increase its share of, and consolidate the Battersea project, in which Sime Darby and S P Setia each now owns a 40% stake. EPF holds the balance 20%. On the other hand, it will face greater project and forex risks.

- If the speculation turns out to be true, a share swap method that strengthens the belief in Sime Darby’s long-term growth prospects may be preferable, over a rights issue.

- Sime Darby’s prospective listing of the auto division offers some medium term upside.

- Our BUY call is still premised on its long-term growth prospects in:- (1) CPO price and segment’s growth potential, particularly in Liberia and now in PNG; (2) huge property land bank; (3) established auto franchises across the region; (4) strong China Utilities growth.

Source: AmeSecurities