Sime  Darby  has  entered  into  three  S&P  agreements  to  sell  its  power assets  in  Thailand  for  USD162.9m  (MYR522.9m).  We  deem  the  pricing reasonable, while the disposal is in line with its strategy to dispose of its non-core assets. We make no change to our forecasts as the entire power  division  only  contributes  to  2-3%  of  group  profit.  Maintain NEUTRAL, with our SOP-based FV at MYR10.40.

• To  sell  Thai  power  assets.  Sime  Darby  has  entered  into  a  sale  and purchase agreement (SPA) with B.  Grimm Power Ltd for the disposal of: i) a  100% stake in Sime  Darby Power Co. Ltd (SDPC), ii)  100% of  Sime Darby LCP Power Co. Ltd (SDLP), and iii)  a  100% stake in  Sime Darby O&M  (Thailand)  Co.  Ltd  (SOMT),  for  a  total  cash  consideration  of USD162.9m  (approximately  MYR522.9m).  SDPC  and  SDLP  are principally involved in the production and sale of electricity and steam in the Laem Chabang Industrial Estate, Chonburi, while SOMT is principally involved  in  the  operation  and  maintenance  of  power  plants.  The disposals are expected to be completed by end-June 2014.
• In  line  with  long-term  strategy.  This  disposal  does  not  come  as  a surprise to us, as Sime Darby  sold off its Malaysian power plant in April2014  for MYR300m  in a bid to dispose of its non -core assets. Its Laem Chabang  assets  consist  of  two  base-load  plants  of  163MW,  which translates  to  pricing  of  USD1m/megawatt  (MW).  This  is  a  significant premium to the disposal price of its Malaysian power assets, which were sold  at  USD0.3m/MW.  However,  the  Malaysian  power  plants’  power purchase agreement (PPA) expires in 2016, whereas the Laem Chabang power plants’ PPAs expire in 2019.
• No significant impact on earnings.  We do not expect this disposal to have  a  significant  impact  on  earnings,  as  the  entire  power  division (including the recently disposed Malaysian asset) only contributes   to 2-3% of earnings.
• Still  a  NEUTRAL.  We  maintain  our  SOP-based  FV  of  MYR10.40  and our  NEUTRAL  recommendation.  Although  we  are  still  positive  on  the plantation  sector  as  a  whole,  the  weaknesses  at  Sime  Darby’s  heavy equipment  and  motor  division  could  be  a  threat  to  earnings  growth, despite its sensitivity to CPO prices. Hence, we advocate shifting away from  the  more  integrated  players  to  the  purer  planters,  which  would benefit more significantly from CPO price movements. 

Source: RHB