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Sime Darby Group Spin-Off

Spin-off situation to monitor.

From The Malaysian Reserves

Market sees different fortunes of demerged Sime Darby Group

Sime Darby Plantation Bhd (SD Plantation) and Sime Darby Property Bhd (SD Property) share prices dropped on their debut, surprising the market as valuations could have triggered the sell-down.

The Sime Darby group’s “pure play” exercise broke the conglomerate into three separate listed companies — Sime Darby Bhd (SDB), SD Plantation and SD Property.

SD Plantation and SD Property’s share prices dropped 10.4% and 20% respectively against the reference prices. But SDB closed 50 sen, or 27%, higher at RM2.35 as investors looked for value of the industry giant created a decade ago.

An industry analyst said the counters’ performance went the opposite of market expectations, and the heavy sell-down of the plantation and property stocks could be down to issues or a mismatch in valuation.

“On paper, SDB is engaged in more volatile businesses — namely in industrial, motors and logistics.

“On the other hand, SD Plantation is in an industry with relatively good prices and sentiment at the moment, while SD Property’s sizeable landbank was expected to cushion against the challenging property outlook,” said the market analyst who declined to be named.

The analyst said the Sime Darby group exercise was to unlock greater value.

“The idea was that the sum of the parts was to be greater than what could be achieved as a single listed entity.

“The question now is whether the rise in SDB’s stock is sufficient to offset the substantial declines noted in the plantation and property stocks respectively,” said the analyst.

Upon debuting on the market as separately listed firms, the three counters opened for a collective value of RM9.30, 4% higher to the combined SDB’s last traded price of RM8.94 on Nov 24.

However, they since closed for a total worth of RM8.56 last Thursday, representing a 4.4% decline. SD Property chairman Tan Sri Abdul Wahid Omar (picture) said the reference price determined prior to the pure play exercise is just a starting point for the companies who will look to improve fundamentals and earnings, while creating better value for shareholders.

Abdul Wahid said the property developer has “upside potential” due to its established track record and 20,763-acre (8,402.5ha) landbank.

“We will be using a three-prong approach to utilise this huge landbank that we have,” he said during the company’s listing ceremony last Thursday.

Despite the blip, SD Plantation — which was the largest revenue generator to the “old” Sime Darby group — sees growing demand for edible oils.

Expanding population will fuel higher food consumption in key consumer markets, and the planter expect its market reach to grow over the next five years.

“To leverage on the steady growth in the demand for palm oil, SD Plantation will focus on operational excellence, expansion of its business presence in high-margin products covering the attractive mid and downstream markets, while strengthening its sustainability credentials,” the company said in a statement.

“Central to achieving these strategic objectives lies in increasing its yields and driving efficiency.” The division is encouraged by its fresh fruit bunches production for the first quarter of its financial year ending June 30, 2018, having improved to 2.7 million metric tonnes from 2.15 million metric tonnes.

This was a direct result of more focused efforts to improve its operational performance. The company also aims to achieve a 5%-7% replanting rate across Malaysia and Indonesia.

“Leveraging on the replant, we will be looking to escalate its efforts further by implementing cost-reduction exercises to augment the positive impacts of new and higher yielding planting materials, improved mechanisation and technology, as well as best agro management practices,” the group said.

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