Sime Darby Plantation is expanding its oil palm plantation land bank and lauric oils business into coconut production via the acquisition into Markham Farming Company Ltd (MFCL) for an estimated sum of US$52.6m. While the acquisition is insignificant (which only increases Sime Darby Plantation’s total planted oil palm plantation land bank by <1%), it allows Sime Darby Plantation to expand its lauric oils business into coconut production, by leveraging on MFCL’s position as the largest coconut oil exporter in PNG. Pricing wise, the acquisition translates to a price tag of circa US$11,000/ha. Maintain earnings forecasts, SOP-derived TP of RM5.72 and HOLD rating on the stock.

NEWSBREAK

Sime Darby Plantation announced that New Britain Palm Oil Ltd (NBPOL, a wholly owned subsidiary) has completed the acquisition of the entire stake in Markham Farming Company Ltd (MFCL) for an estimated sum of US$52.6m (translating to RM215.6m). Besides, NBPOL also assumed the outstanding net debt of approximately US$11m. Final acquisition price will be subject to findings of a post completion audit.

MFCL owns (i) 6,110ha of agriculture land in Markham Valley, Papua New Guinea (PNG), comprising 2 estates, namely Munum (1,733 ha) and Erap (4,377 ha), which are located close to Lae, PNG’s largest port. Out of the total plantable area of 5,713 ha, about 4,018 ha (70% of the plantable area) has already been planted with oil palm, and (ii) 2 copra mills in Buka and Madang, PNG, with total combined throughput capacity of 55,000 mt per annum.

HLIB’s VIEW

Land bank. Based on our estimates, the latest acquisition will increase Sime Darby Plantation’s total planted oil palm plantation land bank by 0.7% to 606,470 ha. Slight increase in land bank aside, the acquisition allows Sime Darby Plantation to expand its lauric oils business into coconut production.

Price tag. Pricing wise, the acquisition translates to a price tag of circa US$11,000/ha (based on plantable area of 5,713 ha and without taking into account of the 2 copra mills).

Forecast. Maintain, as impact arising from the latest acquisition is minimal given Sime Darby Plantation’s large earnings base.

Maintain HOLD, TP: RM5.72. Maintain HOLD rating with unchanged SOP-derived TP of RM5.72 (see Figure 1).

Source: Hong Leong Investment Bank Research - 24 Aug 2018