by MARK RAO/TMR GRAPHIC
The much anticipated demerger of the Sime Darby group was completed today with the separate listing of three entities, breaking one of the country’s largest conglomerate into “pure plays” and allowing the individual businesses to measure against similar peers.
The Sime Darby group was the result of the mega mergers of then “giants” – Sime Darby, Guthrie and Golden Hope – in one of the most intricate and surprising corporate exercises in 2007. The demerger of the giant into separate “pure plays” aims to unlock the value of the companies and provides the visibility on each firm’s performance.
Sime Darby Property Bhd which was responsible for many well-known addresses like Subang Jaya and Bukit Jelutong, traded 20 sen lower from its reference price of RM1.50 at the opening bell.
Its MD Datuk Seri Amrin Awaluddin said the company will focus its development based on regulatory requirements and market demands.
“We are focused on providing affordable housing in terms of statutory requirement and in terms of market demand will be based on the right pricing,” Amrin said after the company’s shares began trading on the main market of Bursa Malaysia Securities Bhd today.
“The statutory affordable segment comprises homes priced at RM350,000 or below. In Klang Valley, we have built and launched about 1,000 units and (we) will continue to do that.”
He said the company has also witnessed a strong demand for its other projects (units priced between RM600,000 and RM800,000) like the recently launched Lot 15 development in Subang Jaya which had garnered a 64% take-up rate.
Sime Darby Property chairman Tan Sri Abdul Wahid Omar said the company is in a comfortable financial position to utilise the remaining 20,763 acres landbank in Malaysia.
“We have a shareholders’ fund amounting to RM9.65 billion, a 12% gearing level and are in net cash position – putting us in a solid financial position going forward,” Abdul Wahid said.
Sime Darby Plantation Bhd – the main revenue generator for the Sime Darby group prior to the demerger – opened marginally higher at RM5.60, up one sen from its reference price.
At 11.08am today, the world’s largest plantation company based on planted area saw its share price fell 62 sen to RM4.97 as 7.38 million shares exchanged hands.
Sime Darby Plantation MD and executive deputy Chairman Tan Sri Mohd Bakee Salleh said the company is aiming to increase the contribution from its downstream business to 20% from the current 5% in the next five years.
“We are looking to increase the production of segregated and differentiated products which will translate into higher margins,” he said.
“Presently we see a strong demand from the US and Europe,” he said, adding that the firm is open to strategic alliances to cement its footings in these markets.
The company, which is also the largest producer of certified sustainable palm oil globally, is sitting on a 60% gearing level which the planter aims to reduce between 1% and 2% by the end of the financial year ending June 30, 2018.
On the outlook of the crude palm oil (CPO) prices, he said the company is looking at a price range of between RM2,500 to RM2,600 per tonne in the near term, while prices are expected to rise next year as the industry moves into the low cropping months.
“The measures taken by the Indian government to raise import duties resulted in downward pressure on prices couple with the ringgit appreciation to about RM4.08 against the dollar today,” he said.
“The expectation of higher production this month also resulted in short-term downward pressures on CPO prices.”
Going forward, he said Sime Darby Plantation will focus on consolidation to capitalise on the current investments and assets.
Following the demerger of its plantation and property arms, the leaner Sime Darby Bhd opened strongly at RM2.40 today, 29.7% higher than its RM1.85 reference price.
This comes after the company noted a jump in profit from the industrial division after the disposal of properties in Australia amounting to RM156 million, while earnings from its motors business was bolstered by higher sales in China, Malaysia and Singapore.
Its group CEO Jeffri Salim Davidson said it expects the industrial business to be boosted by coal prices shooting up over the past year as the sector comes off a low cycle.
“60% of our industrial business is coming out of Australia and that is coal-mining related which is going through a tough time at the moment,” he said.
While the demerger exercise resulted in different market directions for each of the separate entities, the collective value of the opening prices of the three companies stood at RM9.3, which is 4% higher than Sime Darby Bhd’s last traded price of RM8.94 on November 27 this year.
The demerger was undertaken to unlock the value of the separate business entities of the Sime Darby group, while catering to retail and institutional investors’ demand.
(The story has been edited with the input from the related stakeholders for correctness.)