HLIB Research keeps 'buy' call on Sime Darby despite aborted reverse takeover of Saizen REIT

PETALING JAYA: HLIB Research said it is keeping its “buy” call on Sime Darby Bhd, although the group has aborted its plan to create a Real Estate Investment Trust (REIT) platform through a reverse takeover of Singapore-listed Saizen REIT last Friday.
In a note yesterday, HLIB Research said its “buy” recommendation is underpinned by the group’s plan to spin off its plantation and property businesses, which would further crystalise its deep intrinsic value.
HLIB Research said this also includes Sime Darby’s recent completion of a private placement, which has strengthened the group's balance sheet, and the research house’s anticipation of better quarters on the back of better plantation and property earnings.
HLIB Research said, in addition, it had not incorporated the REIT proposal into its earnings forecasts, as details were sketchy when the deal was announced (in August 2016).
However, the research house said it is mildly negative on the latest development, as the aborted plan was aimed at unlocking the values of Sime Darby’s industrial property assets and allow greater flexibility in its future fundraising exercises in building a sizeable international portfolio of assets.
HLIB Research maintained its call for the group with an unchanged sum-of-parts-derived target price of RM10.06.
Sime Darby’s unit Hasting Deering Australia Ltd and Sime Darby Property Singapore Ltd had in August 2016 initiated the reverse takeover of Saizen REIT, as part of its strategy to pare down borrowings and generate a recurring income stream.
Hasting Deering was to inject 14 industrial properties into Saizen REIT, while Sime Darby Property Singapore was to acquire an 80% stake in Saizen REIT’s manager, Japan Residential Assets Manager Ltd.
Nevertheless, Sime Darby said it was not possible to complete the transaction process by the long stop date of March 31, 2017, and thus decided not to proceed with the deal.