Highlights

Sime Darby proposed to acquire Industrial Enterprises Co. Ltd (IEC) for RM80.4m (less the net debt position of IEC at completion).

IEC is involved in the business of crushing, refining and distribution of soyabean oil (marketed under the brand names of “TIP” and “TIP Wise”).

IEC has a crushing plant (with capacity of 900mt/day), a neutralization plant (with capacity of 165mt/day) and refinery (with capacity of 140mt/day) in the Nonthaburi province (30 km north of Bangkok and 40 km away from Sime Darby’s existing palm oil refinery).

The proposed acquisition is expected to be completed by mid-July 2014.

Financial Impact

No immediate impact to earnings and balance sheet, given Sime Darby’s large earnings and asset base.

Pros/Cons

Nevertheless, the proposed acquisition is in line with Sime Darby’s strategy to expand and rebalance its plantation businesses, as well as strengthen its presence in the greater Mekong sub-region via its investment in the soya crushing plant. We note that Sime Darby currently has palm oil refineries in Thailand and Vietnam.

Earnings Forecasts

Maintained.

Risks

• Sharp fall in FFB output and/or palm product prices at the plantation division;
• Prolonged weak demand for mining equipment; and
• Delay in property launches.

Rating

HOLD


Positives – Strong balance sheet.

Negative – (1) Cooling economic activities in China and Australia may have an adverse impact on Sime Darby’s earnings; and (2) Overseas expansion risk.

Valuation

Maintain SOP-derived TP of RM10.02 (see Figure 1).

Source: Hong Leong Investment Bank Research - 24 Jun 2014