KUCHING: Sime Darby Bhd’s (Sime Darby) potential acquisition of Kulim (M) Bhd’s (Kulim) stake in UK-listed New Britain Palm Oil Ltd (NPBOL) has been viewed positively by analysts as the acquisition will add oil plantations in Papua New Guinea (PNG), palm oil mills and refinery in PNG and Liverpool.
The acquisition could see Sime Darby gaining 77,000 hectares of oil palm plantations in PNG and the Solomon Islands, 12 palm oil mills and one refinery each in PNG and Liverpool.
According to AmResearch Sdn Bhd (AmResearch), the plantation size is approximately nine per cent of Sime Darby’s total landbank of circa 860,000 hectare and circa 14 per cent of its total planted area of circa 542,000 hectare.
“NBPOL is also the largest domestic sugar and beef producer in PNG, with 7,700 hectare of sugar cane plantations and 9,200 hectare of grazing pastures.
“It owns a seed production and palm breeding facility, according to previous reports,” AmResearch said.
NBPOL closed at £5.19 on the Main Board of the London Stock Exchange yesterday. As at closing yesterday, Sime Darby rose five sen to RM9.55, with 5.37 million shares changing hands.
To note, Sime Darby has emerged as the sole potential buyer of Kulim’s stake in NPBOL. The parties have entered into exclusive discussions to finalise the terms of the deal but no indicative pricing has been given as yet.
NBPOL is 48.97 per cent owned by Kulim, while the West New Britain Provincial Government is the second largest shareholder with eight per cent.
“NBPOL was traded at 5.18 pounds per share (circa RM28 per share), translating into a market cap of 778 million pounds (RM4.2 billion), and at 19-folds price earnings on financial year 2014 estimates, according to Bloomberg consensus,” AmResearch said.
Kulim had last year failed to raise its stake in NBPOL by an intended 20 per cent, to 68.97 per cent via a partial GO at 5.50 pounds per share.
The Securities Commission of PNG had imposed a restraining order against the move that it had viewed as against “national interest”.
“NBPOL’s management had also opposed the deal, while the independent adviser reportedly said the fair value was estimated at between 6.50 pounds to seven pounds per share,” AmResearch commented.
Affin Investment Bank Bhd’s research team (Affin Research) was also positive on the prospects of Sime Darby acquiring Kulim’s equity stake in NBPOL.
In a note yesterday, the investment bank maintained its ‘add’ rating on Sime Darby with an unchanged price target of RM10.52 from RM9.50.
“There will be avenues for earnings enhancement through operational synergies, provided Sime Darby has full management and operational control over NBPOL,” said Affin Research.
Funding an acquisition of about RM2 billion was not an isuse for Sime Darby, Affin Research said, as the core businesses were profitable and the group was sitting on a cash reserve of RM4.2 billion as at March 31, 2014.
All in all, AmResearch maintained its numbers for now pending finalisation of the transaction, which would likely lead to an MGO in NBPOL.
“We maintain ‘buy’ on Sime Darby, with a fair value of RM11.20 per share – a 10 per cent discount to our sum of parts value of RM12.45 per share,” it said.