HLIB Research keeps Buy on Sime Darby, ups target to RM10.06

KUALA LUMPUR (Jan 27): Hong Leong IB Research has maintained its “Buy”rating on Sime Darby Bhd with a higher target price of RM10.06 (from RM9.06) after Sime Darby announced its plan to spin off its plantation and property segments in separate listings on the local stock exchange, while retaining its trading and logistic segments.

In a note today, the research house said it was positive on the move, as the planned spin-offs allow Sime to crystalise values of its businesses.

Besides, it said the spin-offs allow each business to take advantage of potential growth and opportunities.

“Based on our sum-of-parts valuation methodology, we value Sime’s: (1) Plantation business at RM35 billion (based on 20x CY2018 net profit and EV of RM60,885/ha for its total planted landbank of 603,254ha); and (2) Property business at RM19.8 billion (based on RNAV for its existing landbank, RM1.55/share and RM0.18/warrant for its remaining 10% stake in E&O).

“Maintain earnings forecasts, pending completion of the exercise.

“Maintain Buy recommendation with higher SOP-derived target price of RM10.06 (from RM9.06 previously) as we remove our 10% holding company discount on Sime (we believe the spin-offs will unlock values of its businesses),” it said. — theedgemarkets.com