INVESTMENT HIGHLIGHTS

• More details of the pure play strategy shared

• 6.8b shares for both Sime Darby Plantation (SDPL) and Sime Darby Property (SDPR)

• SDPL – the world largest plantation company by planted area

• SDPR – Malaysia largest property company by landbank.

• Future Sime Darby - Motors and Industrial

• Maintain NEUTRAL with TP of RM9.05

More details of the pure play strategy shared: We attended an Analyst Briefing organised by Sime Darby Berhad (SIME) in which more details of its pure play strategy are shared. These are as per the Draft Prospectus of Sime Darby Plantation Berhad and Sime Darby Property Berhad which are available at the Securities Commission (SC) website. Approval by authorities is expected in Oct/Nov 2017 followed by the EGM in Nov 2017 and the eventual listing in Nov or Dec 2017.

6.8b shares for both Sime Darby Plantation and Sime Darby Property: Post internal restructuring and share split, the final outstanding shares of Sime Darby Plantation and Sime Darby Property will be 6.801b shares which is the same as the current Sime Darby Berhad.

Sime Darby Plantation – the world largest plantation company by planted area. Sime Darby Plantation Berhad (SDPL) owns 602,509 ha of land planted with oil palm. The Company produced 2.48m MT of CPO in FY17. Moving forward, SDPL aims to achieve: i) FFB yield of 25 MT/ha and OER of 25% by 2025, ii) 20% EBIT contribution from the downstream division and iii) integrated economics across the value chain. It has minimum dividend payout ratio target of 50%.

Sime Darby Property – Malaysia largest property company by landbank. Sime Darby Property (SDPR) owns 16,938 acres of landbank located at established townships. The remaining GDV is RM101.1b and it has unbilled sales of RM1.5b as of end-FY17. Currently, its major ongoing township developments include: i) The City Of Elmina @ Shah Alam (Remaining GDV: RM20.4b), ii) Bandar Bukit Raja @ Klang (Remaining GDV: RM14.6b) and iii) Serenia City @ Sepang (Remaining GDV: RM8.6b). It has minimum dividend payout ratio target of minimum 20%.

Future Sime Darby - Motors and Industrial. Post the demerger of SDPL and SDPR, the future Sime Darby main businesses are Motors and Industrial. These two divisions contributed to more than 90% of its EBIT. Motors Division sold ~84,000 units of cars in FY17 (37% from China/Hong Kong/Macau; 35% from Malaysia; 28% from other countries). Industrial division is the No. 3 Caterpillar Dealer in the world and it has order book of RM2.2b as of end-June 2017.

Maintain NEUTRAL with TP of RM9.05: The details from the briefing have been factored in previously hence no change to our earnings estimate for FY18 and FY19. Our Target Price is based on Sum-Of-Parts based valuation. While SIME valuation at 25.3x PE appears to be high, its share price is supported by decent dividend yield of 2.7% and the expectation of value creation from the demerger corporate exercise.

Source: MIDF Research - 29 Sept 2017