Highlights

• Sime Darby Property Bhd (wholly-owned subsidiary of Sime Darby Bhd) signed an MOU with MMC Port Holdings Sdn Bhd, Adani Ports and Special Economic Zone Ltd (APSEZ) to undertake feasibility study in developing an integrated port on Carey Island, which will in turn support the proposed development of a new port on a greenfield site on Carey Island.
• Simultaneously, MMC Ports and Adani Ports have signed a separate MOU to explore the feasibility of the Carey Island Port Project as an extension of Port Klang.
• Recall, Port Klang Authority (PKA) and Malacca Port Authority unveiled plan to build a massive port and industrial complex on Carey Island. The project will cover an area of ~ 100 km� and will be divided into 3 phases comprising port, industrial zone, and commercial and residential areas, with total GDV of potentially exceeding RM1 trn.

Comments

• While the feasibility study of the development is still at preliminary stage and details remain sketchy, we are of the view that Sime Darby will emerge as the main beneficiary (if the new port development materializes), given its vast landbank (more than 11,000 ha) in Carey Island at low cost.

Risks

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

Forecasts

• Maintained, pending finalization of details.

Rating

BUY ↔

• We keep our BUY recommendation on Sime, underpinned by: (1) Its plan to spin-off the plantation and property businesses, which would further crystalize Sime?s deep intrinsic value; (2) Recent completion of private placement, which has strengthened Sime?s balance sheet; and (3) Our anticipation of better quarters ahead on the back of better plantation and property earnings.

Valuation

• Maintain BUY with unchanged SOP-derived TP of RM10.06 . We have previously removed our 10% holding company discount on Sime as we believe the spin-offs will unlock values of its businesses.

Source: Hong Leong Investment Bank Research - 04 Apr 2017