KUALA LUMPUR: RHB Research Institute said Sime Darby Bhd was likely, in the longer term, participate in Eastern and Oriental Bhd's (E&O) Seri Tanjung Pinang 2 (STP 2) project in Penang, which has a gross development value (GDV) of RM12 billion.
In its report issued on Wednesday, Oct 12, it expected profit to only come in two to three years' time.
The research house had also viewed the Securities Commission's decision that Sime Darby did not have to extend a mandatory general offer for E&O as positive.
RHB Research believed Sime would now be able to move on from this to focus on extracting synergies from its acquisition of the 30% stake in E&O. This was especially since E&O managing director Datuk Terry Tham Ka Hon had assured shareholders that he would retain his role in E&O for the next few years, it said.
The research house said it was maintaining its sum-of-parts based fair value of RM9.35 and its outperform recommendation on Sime Darby.
"We maintain our view that based on E&O's FY03/11 net profit of RM30.7 million, earnings accretion from this acquisition to Sime is negligible, after taking out the interest income foregone," it said.
The research house said although consensus estimate for FY03/12 is much higher at RM94.8m, E&O only achieved net profit ex-exceptional items of approximately RM8.2 million or 8.6% of consensus earnings in 1QFY03/12. However, it is widely believed that stronger profits would only come in the later part of 2011 and 2012, said RHB Research.
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