Investment Research

· RM77.7m exchange
Sindora announced yesterday that it had entered into a conditional Exchange of Land Agreement with Sime Darby Plantation Sdn Bhd. Sime Darby had valued their land (2,226ha in Kluang, Johor) at RM71.7m while Sindora had valued their land at RM77.7m (2,372ha in Batu Pahat) hence arising in Sime paying them RM6m for the exchange. Sime’s land has a tree maturity of 1-35 yrs with Sindora’s at 2-28 years. Land cost for Sime is RM32.9m while Sindora holds theirs at RM40m. The rationale behind the exchange is that Sindora’s land is not sizeable enough for a CPO mill while Sime’s land sits between two estates owned by Kulim, Sindora’s parent company. (Bursa)

· Exchanged at roughly RM33,000 per ha
The exchange of land is at some RM33,000 per ha which we understand to be a reasonable price for brownfield land especially in current market conditions. While the move has pretty much no significant financial impact to Sime Darby, we believe it does set some indication for land sale pricing of brownfield plantation land in Johor. To note, plantation land in Johor has reasonable yields of about 20mt/ha per annum. We continue to be positive on Sime Darby given our optimism that CPO prices are able to improve further as country stock levels continue to ease and exports keep coming through. We understand the group to be consistently improving on estate management and this should bring up group yields. This is especially so for 200,000ha in Indonesia, which are currently yielding 18mt/ha pa and have room for improvement. Due to the sheer size of Sime’s plantations, marginal improvements in yields can cause significant improvements to group numbers given the economies of scale advantage. Also surprisingly, the Industrial segment (which distributes and maintains largely Catarpillar equipment) is holding up well despite economic conditions.
That said, the company is not without its risk factors. We identify these to be in other segments which are in for a very tough year like auto (Hyundai marque losing more market share while TIV is expected to decline), Sime Engineering (experiencing margin squeezes due to materials locked in at higher costs and concerns about orderbook replenishment), and properties (expected to be slow moving given current economic conditions and the group likely to hold back on major launches). Otherwise, the plantations & industrial segment which together contribute some 70% to EBIT should make up for potential losses in other smaller segments. As mentioned in our results note, the Group nonetheless looks set to surpass their RM1.9bn net profit KPI target this year.