Highlights

Sime Darby Property signed a memorandum of agreement (MOA) with Eastern & Oriental Bhd (E&O, a 32% associate of Sime Darby) to negotiate the terms of a sale and purchase agreement as well as the purchase price for E&O’s proposed acquisition of 135 acres of freehold land in Elmina West estate, Sungai Buloh.

The land, which measures 135 acres, will be carved out of the 843-acre land held by Sime Darby, which in turn forms part of the City of Elmina townships (located along the Guthrie Corridor Expressway).

E&O intends to develop the land based on a “wellness” theme, consisting of both commercial real estate and lifestyle residential development.

Both parties aimed to sign a concrete deal before 1Q2014.

Comments

Positive. If successful, this will allow Sime Darby to leverage on E&O’s brand name as a niche luxury lifestyle developer, hence enhancing the value of City of Elmina township project, which has a total GDV of RM13bn over 10-15 years.

Moreover, it will still enjoy 32% of the future contribution from the said land as well as expedite unlocking of values from its huge landbank.

Based on our estimates, Sime Darby will be able to rake RM166m profit from the land disposal (which will in turn boost our FY14 core net profit forecast by 5%), assuming: (1) Selling price of RM25 psf (based on the average transacted prices of land nearby); and (2) The average net book value of 50 sen psf for Sime Darby’s land bank in Elmina estate.

Earnings Forecasts

Maintained, as the negotiation is still ongoing. Risks  Earlier-than-expected recovery in edible oil demand and prices; and

Weather uncertainties revisit, which would have a positive impact edible oil prices.

Rating

HOLD


Positive – Strong balance sheet.

Negatives – (1) Weak global economic outlook, coupled with the impending excess supply of CPO will affect both demand and prices of CPO; (2) Cooling economic activities in China and Australia may have an adverse impact on Sime Darby’s earnings; and (3) Overseas expansion risk.

Valuation

Maintain SOP-derived TP of RM8.73 (see Figure 1).

Source: Hong Leong Investment Bank Research- 27 Sep 2013