INVESTMENT HIGHLIGHTS

• Expanding plantation land in Papua New Guinea

• EV per planted ha estimated at RM65,000

• Earnings estimate maintained at this juncture

• Maintain Neutral with TP of RM5.15

Expanding plantation land in Papua New Guinea. Sime Darby Plantation (SIMEPLT) announced that its fully owned subsidiary New Britain Palm Oil Limited (NBPOL) has completed the acquisition of 100% equity interest in Markham Farming Company Limited (MFCL) for USD52.6m (or RM215.6m). In addition to this, NBPOL has also assumed outstanding net debt of MFCL and MAPL totalling approximately USD11.0 million. We gather that the final price will be subject to the findings of a post-completion audit.

EV per planted ha estimated at RM65,000. Note that MFCL owns 6,110 ha of agriculture land (4,018 ha planted) in Markham Valley, Papua New Guinea. In addition to the land, MFCL owns two copra mills with total copra throughput capacity of 55,000 tonnes per annum. Assuming USDMYR rate of 4.10, the deal is valued at an estimated Enterprise Value (EV) per ha of RM65,000. In 2014, SIMEPLT (under the previous Sime Darby structure) bought NBPOL at EV of RM84,200 per ha which includes two refinery in PNG and Liverpool. We are unable to establish whether the MFCL deal is fair pending the details of age profile of its estates.

Earnings estimate maintained at this juncture. In view of lack of information shared on the age profile of the planted estate, we maintain our FY18/FY19 core earnings estimates of RM1.08b/RM979m. SIMEPLT is expected to release its 4QFY18 earnings on 30-Aug-2018. Net gearing is expected to increase slightly to 0.43x (from 0.41x).

Maintain Neutral with TP of RM5.15. Our TP is based on Blended PE and PB method. We are Neutral on SIMEPLT as its decent fundamentals and stable dividend yield have been priced in to its Forward PE of 33.6x (against IOICORP’s 23.4x and KLK’s 24.2x).

Source: MIDF Research - 24 Aug 2018