Analysts positive on Sime Darby potential Papua New Guinea foray

04 Aug 2014 / 05:40 H.

    PETALING JAYA: Analysts view the selection of Sime Darby Bhd as the preferred bidder of Kulim (Malaysia) Bhd's equity interest in New Britain Palm Oil Ltd (NBPOL) as a good opportunity for the conglomerate to make its entry into Papua New Guinea.
    Public Investment Bank said with the acquisition of Kulim's stake in NBPOL, it will pave way for Sime Darby's maiden foray into PNG without the need for hefty capital expenditure and time in building up its presence.
    "Though it will not help consolidate Sime Darby's business profile, we believe it will create synergistic collaboration in plantation-related businesses given their strong presence in the region. Financially, given its current low net gearing of 0.22x and proceeds from the recent divestment of a few entities, we believe funding would not be an issue in acquiring the stake from Kulim," it said in a note on Friday.
    On Thursday, the company announced that it has been chosen as the preferred party to negotiate the purchase of Kulim's 49% stake in NBPOL. Both parties have now entered into exclusive discussions for a period of 60 days or longer to finalise the terms of the transactions.
    Pending the completion of the deal, the bank has maintained its outperforming call on Sime Darby with an unchanged target price of RM10.10.
    NBPOL, listed on the London Stock Exchange with a market capitalization of GBP750 million (RM4 billion), has a total land bank of 134,600ha with about 80,000ha of oil palm plantations in PNG and the Solomon Island.
    It has 12 palm oil mills and one refinery each in PNG and Liverpool. It also has more than 42,500ha mature land bank cultivated by smallholders, who supply the production to NBPOL. Its annual crude palm oil production is about 500,000 mt with annual fresh fruit bunches processed of about 2 million metric tonne. It has an attractive average age profile of 10.8 years old with 65% of total mature plantation below 12 years old.
    AmResearch also view it as positive for Sime Darby as it would gain 77,000ha of oil palm plantations in PNG and the Solomon Islands, 12 palm oil mills, and one refinery each in PNG and Liverpool.
    "We maintain our numbers for now, pending finalisation of the transaction, which would likely lead to a mandatory general offer (MGO) in NBPOL," it said, adding that maintaining its buy recommendation on Sime Darby.
    CIMB Equities Research said it is not surprise by the news as Sime Darby has the best financial resources to scoop up this acquisition among the bidders, based on its analysis.
    Pending more details on the transactions, it is neutral on the news.

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