Sime  Darby  has  proposed  to  acquire  a  Thai  soybean  crushing  and refining company, Industrial Enterprises Co Ltd,  for MYR80.4m. On an EV/tonne  basis,  the  price  seems  reasonable  and  lower  than  recent transactions.  While  not  a  palm  oil  facility,  it  still  processes  vegetable oils – which is within Sime Darby’s expertise and could help strengthen the conglomerate’s downstream earnings base.

• Buying  Thai  company  for  MYR80.4m.  Sime  Darby,  through  its subsidiaries,  Sime-Morakot  Holdings  (Thailand)  Ltd  and  Sime  Darby Plantation Europe Ltd,  has  entered into a conditional sale-and-purchase agreement  with Sub Sri Thai (SST TB, NR)  to acquire a  99.9% stake in Industrial Enterprises  Co Ltd (IEC) for a total  consideration  of  THB815m (or  approximately  MYR80.4m).  The  acquisition  is  expected  to  be completed by mid-July.
• IEC  has  a  soybean  crushing  and  refining  complex   which  sits  on  a 13ha  piece  of  freehold  land  in  the  Nonthaburi  province  of  Thailand, approximately  30km  north  of  Bangkok  and  40km  away  from  SimeDarby’s  existing  396,000-tonnes/year  palm oil refinery in Thailand. It is located at a riverfront that is equipped with a jetty. In terms of capacity, it has a 900 tonnes/day crushing  facility, a 165  tonnes/day neutralisation facility and a 140 tonnes/day refining capacity.
• EV/tonne valuation seems reasonable.  It is hard to gauge if the price is a reasonable one, due to  the  lack of details on  IEC’s  profitability. On an  EV/tonne  basis,  it  is  priced  at  about  MYR268/tonne,  ie  at  a  slight discount  to  Bunge  (BG  US,  NR)’s  soybean  crushing  plant  in  Vietnam, which  was  built  at  a  cost  of  c.MYR300/tonne  in  2011.  While  this acquisition  is  a  bit  of  a  digression  from  palm  oil,  the  facility  handlesmaterials that are still in the vegetable oil family  –  which is  within SimeDarby’s expertise  and could  help it  gain a better foothold in the  Greater Mekong sub-region, as well as grow its downstream earnings base.
• Still  NEUTRAL.  We  leave  our  forecasts  unchanged  at  this  juncture, pending  further  details.  We  do  not  expect  this  acquisition  to  have  a significant impact on earnings, however, due to the size of  the  plant. As such, we maintain NEUTRAL on the stock and keep our  SOP-based  FV unchanged at MYR10.40.

Source: RHB