HwangDBS Vickers Research maintains fully valued call on Sime Darby

KUALA LUMPUR: HwangDBS Vickers Research is maintaining its Fully Valued call and RM7.45 target price on Sime Darby following the recent corporate developments involving RAMUNIA HOLDINGS BHD [] and a possible issuance of new shares to China.

Sime Darby Engineering, Ramunia Holdings and Ramunia Optima have mutually agreed on a purchase consideration of RM530 million (versus n earlier indicative price of RM232 million, including liabilities) for the Ramunia Fabrication Yard.

The research house said on Sept 4 the completion of this acquisition would allow Sime Darby to capitalise on Ramunia yard to bid for bigger oil and gas projects going forward.

"Nevertheless, we do not expect a significant impact to Sime's FY10F earnings outlook, as oil and gas/engineering profit contribution remained relatively small (1.8% of FY10F consolidated EBIT based on our estimate) compared to the group's consolidated profit," it said.

On a news report that Prime Minister Datuk Seri Najib Razak had discussed a plan to offer up to a 10% stake of Sime Darby to China in a recent Cabinet meeting, it said there was no mention whether the targeted company would be a Chinese Investment Agency or any particular state-owned company.

"If true, we believe this would be taken as a positive signal, as having an influential Chinese company as a shareholder may be helpful in expanding Sime Darby's businesses in China," it added.

HwangDBS Vickers Research said Sime Darby currently has a water treatment plant, a port and property development plans in Weifang (Shandong province), 10% share of BMW market in China (with showrooms spread over Sichuan, Yunnan, Hainan, Guangdong, Hunan), and opened new branches for its industrial products in Xinjiang province.

In return, China may be able to secure palm oil supplies from Sime Darby's massive 2.2 million tonnes per annum output.

"Despite these developments, nevertheless, we expect any issuance of new shares to the Chinese entity would be priced at a discount, hence, possibly dilutive," it said.

The research house also said it did not see immediate benefit to Sime Darby as developments of Sime's new businesses in China would take time to bear fruit.

It added Sime's current growth forecast still very much depends on its PLANTATION [] division from which it did not expect significant volume growth over the next three years.