Journey to Wealth
Sime Darby - Looking to buy Jimah power plant BUY
We reaffirm our BUY rating on Sime Darby (Sime), with ourfair value of RM10.60/share currently under review with an upside bias, pendinga meeting with management.
It has been reported that Sime is looking to acquire the1,400 MW coal-fired Jimah power plant in Port Dickson which is valued at aboveRM1.1bil. The plant is reported to have been up for sale for quite some timeand several parties, including Malakoff, a unit of MMC Corp, had shown interestpreviously. There were also plans by the owner to list the plant although itdid not materialise.
The power plant is owned by Jimah Energy Ventures HoldingsSdn Bhd, of which 70% is owned by the Negeri Sembilan royal family ' underJimah Teknik Sdn Bhd ' and the remaining shareholders are TNB (20%-stake) andJimah O&M Sdn Bhd (10%).
The plant started operations in 2009 and is a thirdgeneration independent power producer with a 25-year concession to supply powerto TNB.
We are not surprised that Sime is looking to acquire powerplants given that it needs to grow its Energy & Utilities (E&U) division,having sold its oil & gas business.We understand talks are at preliminary stage and Sime is currently doing thedue diligence. The group is looking atother power plants within Malaysia as well.
To recap, in 1HFY12, the power unit was the main contributorto E&U's EBIT, accounting for 76% 'albeit there was a one-off recognition of deferred revenue to the tune ofRM99mil during 2QFY12 from the power tariff revision. We estimate E&U tocontribute about 5% and 3% to its revenue and operating profit in FY12F,respectively.
We continue to like Sime as the company is the most liquidproxy to the plantation sector, which accounts for 61% of its FY11's EBIT.Valuations are also attractive, currently trading at CY12F PE of 16x which is belowits 3-year average of 17x.
Source: AmeSecurities
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