Business

Monday January 30, 2012

Analysts praise Sime's foray into rubber plantation in Indonesia

By THOMAS HUONG
huong@thestar.com.my


PETALING JAYA: Sime Darby Bhd's maiden foray into the rubber plantation industry in Indonesia is an excellent long-term prospect, according to research analysts.

Affin Investment Bank said in a report that it viewed the acquisition positively, given the shortage of land in Malaysia and Sime Darby's established know-how in plantation development.

RHB Research Institute said Sime Darby's investment amount was minimal, while the development cost was over a 15-year period.

On Wednesday, Sime Darby told Bursa Malaysia that its indirect wholly-owned subsidiary, PT Minamas Gemilang, which is incorporated in Indonesia, was acquiring a 95% stake in PT Indo Sukses Lestari Makmur for US$4.36mil (RM13.2mil) cash.

PT Indo Sukses, which is involved in the forestry business, had applied for an exploitation licence from Indonesia's Ministry of Forestry (MoF) for over 10,000ha of rubber forest in East Belitung Regency, Bangka Belitung Province.

The deal would involve PT Minamas Gemilang buying 3,500 and 300 ordinary shares in PT Indo Sukses from SLT Capital Pte Ltd and PT Entete Mining respectively.

It should be noted that the deal is dependent on PT Indo Sukses obtaining the exploitation licence from Indonesia's MoF.

The proposed acquisition, which would be funded through internal funds, is expected to be completed within two months from the date of the execution of the conditional share sale and purchase agreement.

Affin Investment's report pointed out that Sime Darby's plantation business was principally in oil palm, with about 314,000ha planted in Malaysia and 208,000ha in Indonesia.

“Its exposure to rubber plantations is minimal, with about 8,100ha planted in Malaysia.”

Affin Investment noted that the implied land price of US$460 (RM1,400) per ha in the Indonesian deal seemed fair.

However, the research unit said the deal would not have a significant impact on Sime Darby's earnings in the 2012-2014 financial years as the land needed to be developed and the land size was small compared with the the conglomerate's land bank of 424,556ha in Malaysia and 285,571ha in Indonesia.

However, RHB Research said it was hard to gauge if the price for the Indonesian land was fair, given the lack of details about the concession period and the portions of the land allocated for timber and rubber.

“This is considered cheap as recent rubber plantation land transactions in Malaysia and Thailand have been priced at between RM20,000 and RM25,000 per ha.”

RHB Research maintained its “outperform” call on Sime Darby's stock, with a fair value of RM10.40 per share.

Affin Investment maintained a “buy” call on Sime Darby's stock, with a target price of RM10.42 per share.

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