According to the president and group chief executive of Sime Darby, the Papua New Guinea government intends to raise its stake in New Britain Palm  Oil  Ltd  (NBPOL)  from  18%  to  as  much  as  30%.  Tan  Sri  Mohd Bakke Salleh added Sime would be happy to have at least a 51% stake and the PNG government as a long-term partner to grow the business of NBPOL. Sime’s general offer for NBPOL is subject to acceptances from not less than  51%  of the voting rights  in NBPOL and  will close on  19 December 2014. (Source: The Edge Financial Daily)

Comments:  The  PNG  government’s  intention  to  raise  its  stake  in NBPOL is not necessary bad news as a higher stake will help facilitate Sime’s plans to secure more land bank to grow the oil palm plantation business  in  the  country.  It  would  be  a  good  strategic  partner  to  have. Assuming a borrowing cost of 3.8% and interest rate of 3% on internal funds,  we  estimated  that  full  control  of  NBPOL  will  enhance  Sime’s FY15 EPS by approximately 4%. Potential management and operational synergies will add to the EPS enhancement in the longer term.

Our  ADD  rating  and  target  price  of  RM9.31  for  Sime  is  under  review pending the release of its 1QFY15 results on 28 November 2014.

Source: Affin Hwang Capital Research - 14 Nov 2014