• Sime Darby to create three stand-alone businesses: Plantations, Property and Trading & Logistics

• Plantations and Property are expected to be separately listed on Bursa Malaysia; while Trading & Logistics will remain under Sime Darby Bhd

• Further details of the new corporate structure and implementation will be released in due time

• Forecasts, TP and HOLD call maintained pending further disclosures of the proposed spin-offs

Story

As a follow through from the corporate structure review announced in 1QFY17 results briefing, Sime Darby overnight revealed plans to create three stand-alone businesses which will be pure plays in Plantations, Property and Trading & Logistics. It is envisioned that Plantation and Property pure pays will be listed separately on Bursa Malaysia; while Trading & Logistics will remain under Sime Darby Bhd (to retain listed status):

1. Plantations (to be called Sime Darby Plantations Bhd) – including both Malaysian operations, Minamas, NBPOL, and Liberia. Sime Darby Plantation is the largest producer of certified sustainable palm oil (CSPO), at 2.6m MT of p.a. (c.23% of global CSPO output). Total land bank is 988,599 ha, of which 603,254 ha are planted (i.e. world’s largest oil palm plantation company). Approximately 16% of the Indonesian-planted hectarage of 203,300 ha are under three years old. Sime Darby Plantation also has pioneering genome sequencing technology, where commercial planting of genome-select palms commenced in 2016. The downstream sub-segment is also profitable; comprising 11 refineries.

2. Property (to be called Sime Darby Property Bhd) – including Battersea Power Station development. Sime Darby Property has access to strategic land banks in Malaysia with potential future growth from areas including the Malaysia Vision Valley, Carey Island and the High Speed Rail link.

3.3. Trading & Logistics The remaining Sime Darby Bhd will consist of Sime Darby Industrial and Sime Darby Motors; as well as the Logistics and Healthcare Divisions. Sime Darby Industrial is exploring new opportunities in new energy solutions, while still expanding its existing businesses. Sime Darby Motors represents 28 marques in ten countries; with sales volume of c.83,000 units in Asia and Australia. Sime Darby Logistics owns and operates five ports with a total throughput of 30.3m MT of general cargo and 215,700 TEU. The healthcare division is a 50:50 joint venture with Ramsay Health Care, operating six hospitals in Malaysia and Indonesia. According to the announcement, the proposed pure-play strategy is meant to enable each business to focus on their respective core activities and pursue their different and distinct aspirations. The creation of the new businesses will be subject to all relevant legal and regulatory requirements, including final approval of the board, shareholders, as well as listing requirements and regulatory approvals.

Point

While no details of the proposed spin-offs, valuations, and capital raising amounts were shared in the announcement, we believe it serves as a starting point for ensuing corporate actions, which we expect to be undertaken in the current financial year.

Relevance

Our forecasts, TP and HOLD call are maintained pending further disclosures for the proposed spin-offs. We believe there is upside potential in the group’s property segment where gross development value may reveal higher valuation than currently assigned. We also suspect proceeds from a separate listing would be employed to pare down existing debts as well as to fund capital expenditures. As at end-September 2016, the group’s calculated debt-to-total equity was 35.2%.

Source: Alliance Research - 27 Jan 2017